Half-yearly Report

Management commentary Half Yearly Report August 9, 2013 - In order to meet its obligations under theDisclosure Rules and Transparency Rules of the United Kingdom FinancialConduct Authority, Shire plc ("Shire" or the "Group") (LSE: SHP, NASDAQ: SHPG)is publishing today its Half Yearly Report for the six months ended June 30,2013. It should be noted that on July 25, 2013 Shire previously announced itsresults in respect of the same period. For further information please contact: Investor Relations Eric Rojas ([email protected]) +1 781 482 0999 Sarah Elton-Farr ([email protected]) +44 1256 894 157 Media Jessica Mann ([email protected]) +44 1256 894 280 Notes to editors Shire enables people with life-altering conditions to lead betterlives. Our strategy is to focus on developing and marketing innovativespecialty medicines to meet significant unmet patient needs. We provide treatments in Neuroscience, Rare Diseases,Gastrointestinal, Internal Medicine and Regenerative Medicine and we aredeveloping treatments for symptomatic conditions treated by specialistphysicians in other targeted therapeutic areas. For further information on Shire, please visit the Group's website:www.shire.com. Shire plc Half Yearly Report 2013 Registered in Jersey, No. 99854, 22 Grenville Street, St Helier, Jersey JE48PX Contents PageThe "safe harbor" statement under the Private Securities Litigation Reform Act 2of 1995Chief Executive Officer's review 3Business overview for the six months to June 30, 2013 4Results of operations for the six months to June 30, 2013 and June 30, 2012 9Principal risks and uncertainties 16Directors' responsibility statement 17Unaudited consolidated balance sheets at June 30, 2013 and December 31, 2012 18Unaudited consolidated statements of income for the six months to June 30, 2013 20and June 30, 2012Unaudited consolidated statement of comprehensive income for the six months to 21June 30, 2013 and June 30, 2012Unaudited consolidated statement of changes in equity for the six months to 22June 30, 2013Unaudited consolidated statement of cash flows for the six months to June 30, 232013 and June 30, 2012Notes to the unaudited consolidated financial statements 25Independent review report to Shire plc 50FORWARD - LOOKING STATEMENTS - "SAFE HARBOR" STATEMENT UNDER THE PRIVATESECURITIES LITIGATION REFORM ACT OF 1995 Statements included herein that are not historical facts are forward-lookingstatements. Forward-looking statements involve a number of risks anduncertainties and are subject to change at any time. In the event such risksor uncertainties materialize, Shire's results could be materially adverselyaffected. The risks and uncertainties include, but are not limited to, that: - Shire's products may not be a commercial success; - revenues from ADDERALL XR® are subject to generic erosion; - the failure to obtain and maintain reimbursement, or an adequate level ofreimbursement, by third-party payors in a timely manner for Shire's productsmay impact future revenues and earnings; - Shire relies on a single source for manufacture of certain of its productsand a disruption to the supply chain for those products may result in Shirebeing unable to continue marketing or developing a product or may result inShire being unable to do so on a commercially viable basis; - Shire uses third party manufacturers to manufacture many of its products andis reliant upon third party contractors for certain goods and services, andany inability of these third party manufacturers to manufacture products, orany failure of these third party contractors to provide these goods andservices, in each case in accordance with its respective contractualobligations, could adversely affect Shire's ability to manage itsmanufacturing processes or to operate its business; - the development, approval and manufacturing of Shire's products is subjectto extensive oversight by various regulatory agencies and regulatory approvalsor interventions associated with changes to manufacturing sites, ingredientsor manufacturing processes could lead to significant delays, increase inoperating costs, lost product sales, an interruption of research activities orthe delay of new product launches; - the actions of certain customers could affect Shire's ability to sell ormarket products profitably and fluctuations in buying or distribution patternsby such customers could adversely impact Shire's revenues, financialconditions or results of operations; - investigations or enforcement action by regulatory authorities or lawenforcement agencies relating to Shire's activities in the highly regulatedmarkets in which it operates may result in the distraction of seniormanagement, significant legal costs and the payment of substantialcompensation or fines; - adverse outcomes in legal matters and other disputes, including Shire'sability to obtain, maintain, enforce and defend patents and other intellectualproperty rights required for its business, could have a material adverseeffect on Shire's revenues, financial condition or results of operations; and other risks and uncertainties detailed from time to time in Shire'sfilings with the U.S. Securities and Exchange Commission, including its mostrecent Annual Report on Form 10-K. TRADE MARKS All trade marks designated ® and ™ used in this Half Yearly Report are trademarks of Shire plc or companies within the Shire group except for 3TC® andZEFFIX® which are trade marks of GlaxoSmithKline, PENTASA® which is aregistered trade mark of FERRING B.V., LIALDA® and MEZAVANT® which are trademarks of Nogra Pharma Limited, and DAYTRANA® which is a trade mark of NovenTherapeutics, LLC. Certain trade marks of Shire plc or companies within theShire group are set out in the Annual Report and Accounts of Shire plc for theyear ended December 31, 2012. Chief Executive Officer's review We are pleased to enclose our financial results for the six-monthperiod ended June 30, 2013. This Half Yearly Report includes condensedconsolidated financial statements prepared in accordance with generallyaccepted accounting principles in the United States of America ("US GAAP"). GOOD PROGRESS: STRONG OPERATIONAL LEVERAGE YEAR TO DATE - Product sales growth of 4% year on year - Non GAAP Operating Income +8% reflecting strong operating leverage year todate - Non GAAP earnings per American Depository Share ("ADS") +8% EXECUTING OUR STRATEGY - Further enhanced organic growth and improved operating margins - Progression of our late stage pipeline addressing unmet needs including: - Lifitegrast for dry eye disease and lisdexamfetamine dimesylate ("LDX")(1)for binge eating and major depressive disorders - Continued but focused research and development ("R&D") investment in otherdevelopment opportunities - Focus on growth and value-driving business development - Good progress integrating three divisions into a simplified `One Shire'organization to create operating leverage, drive fast decisions and focus ongrowth-driving products (1) Lisdexamfetamine ("LDX") currently marketed as VYVANSE® in the US &Canada, VENVANSE® in Latin America and ELVANSE® in certain territories in theEU. Flemming Ornskov, M.D., Chief Executive Officer, commented: "On becoming Shire Chief Executive Officer earlier this year, I was pleased toconfirm the direction we will take, in order to continue to deliversignificantly above industry average growth. We intend to continue to be ahigh-growth innovation business providing differentiated specialist medicinesin areas of high unmet need for patients treated by specialist physicians.Shire's strategic priorities are to grow sales of our existing portfolio andto bring new innovative treatments to market through both R&D and BusinessDevelopment. To deliver this we are evolving the way the business works, introducing aflatter and more scalable structure of initially five commercially focusedbusiness units (Rare Diseases, Neuroscience, Gastrointestinal, RegenerativeMedicine and Internal Medicine) and a single R&D organization supported bycentralized corporate functions. We have made good progress and are pleased with our H1 2013 results. We'resuccessfully executing our strategy to grow by focusing on innovation-drivenspecialty products through both R&D and M&A. In the first half of the year weadded to our pipeline with three acquisitions: Lotus Tissue Repair, Premacureand SARcode BioSciences. We've sharpened our focus on commercial excellenceand we're enhancing our pipeline productivity. Our late Phase 3 projectslifitegrast (acquired from SARcode BioSciences) and LDX for binge eatingdisorder ("BED") are progressing well and are programs in which we haveincreasing confidence. Our strategy has been designed to deliver further enhanced growth. Weanticipate delivering full year double digit Non GAAP earnings growth in 2013and are confident in our ability to grow operating margins going forward." Flemming Ornskov, M.D., Chief Executive Officer Business overview for the six months to June 30, 2013 The following discussion should be read in conjunction with theunaudited condensed consolidated financial statements and related notesappearing elsewhere in this Half Yearly Report for Shire plc and itssubsidiaries (collectively "Shire" or "the Group"). Significant events in the six months to June 30, 2013 and recent developments Products VYVANSE - for the treatment of Attention Deficit Hyperactivity Disorder("ADHD") - On May 1, 2013 Shire announced that the US Food and Drug Administration("FDA") approved VYVANSE as a maintenance treatment in children andadolescents with ADHD. With this new approval, VYVANSE is currently the onlystimulant approved for maintenance treatment in children and adolescents aged6 to 17 years with ADHD, as well as in adults with ADHD. DERMAGRAFT® - for the treatment of Diabetic Foot Ulcers ("DFU") in Canada - On March 25, 2013 Shire announced that DERMAGRAFT is now available in Canadafor the treatment of DFU, following its approval by Health Canada as a classIV medical device for the treatment of DFU in September 2012. VPRIV® - for the treatment of Gaucher disease (Type 1) - On March 21, 2013 the Committee for Medicinal Products for Human Use of theEuropean Medicines Agency issued a positive opinion regarding an update to theclinical efficacy and safety section of the VPRIV Summary of ProductCharacteristics to include information on long term clinical data relating toefficacy and safety in skeletal pathology from the TKT025 extension study inType 1 Gaucher patients. Pipeline INTUNIV® - for the treatment of ADHD in Canada - On July 5, 2013 Shire received approval from Health Canada for INTUNIV XR™(guanfacine hydrochloride extended-release tablets) as monotherapy for thetreatment of ADHD in children aged 6 to 12 years and as adjunctive therapy topsychostimulants for the treatment of ADHD in children, aged 6 to 12 years,with a sub-optimal response to psychostimulants. The targeted launch date isNovember 2013. SPD602 - for the treatment of transfusion-dependent iron overload - In June 2013 data from an on-going Phase 2 study was presented at the 18thCongress of the European Hematology Association. Seventy-two-week data inpatients with hereditary anemias indicate that the safety, tolerability andefficacy profile of SPD602 supports its continued development. Full data fromthe ongoing Phase 2 proof-of-concept program will be available mid-2014. HGT4510 - for Duchenne Muscular Dystrophy ("DMD") - In April 2013, following analysis of the results of toxicology studies,Shire discontinued development of HGT4510 and returned Shire's rights in theasset to Acceleron Pharma Inc. The development of HGT4510 was placed onclinical hold in February 2011, subject to the completion of the toxicologystudies. SRM-003 (formerly referred to as VASCUGEL®) - for the treatment of end-stagerenal disease - In March 2013, Shire enrolled the first patient in its Phase 2 clinicalprogram for SRM-003. SPD557 - for the treatment of refractory gastroesophageal reflux disease("rGERD") - This program has been discontinued following review of headline data fromthe proof-of-concept study which did not support continued development. SPD554 (selective α2A agonist) - for the treatment of various central nervoussystem disorders - This program has been discontinued as part of ongoing portfolioprioritization assessments. LDX - for the treatment of negative symptoms of schizophrenia ("NSS") - Shire has cancelled the NSS Phase 3 program after a review andprioritization of Shire's development portfolio and taking into accountinvestment requirements for recent acquisitions. No patients had been dosed inthe studies and this decision was not due to any safety issues with LDX in anypatient population. Shire remains committed to continuing Phase 3 trials formajor depressive disorder ("MDD") and BED and these are enrolling as expected. Other Developments Acquisition of SARcode Bioscience Inc. ("SARcode") - On April 17, 2013 Shire completed the acquisition of SARcode, a privatelyheld biopharmaceutical company based in Brisbane, California. This acquisitionbrings a new Phase 3 compound, lifitegrast, currently under development forthe signs and symptoms of dry eye disease, into Shire's portfolio. Shireanticipates launching lifitegrast in the United States as early as 2016pending a positive outcome of the Phase 3 clinical development program andregulatory approvals. Shire is acquiring the global rights to lifitegrast andwill evaluate an appropriate regulatory filing strategy for markets outside ofthe United States. After customary closing adjustments, cash considerationpaid on closing amounted to $150 million with further potential contingentpayments upon achievement of certain clinical, regulatory, and commercialmilestones. Acquisition of Premacure AB ("Premacure") - On March 8, 2013 Shire completed the acquisition of Premacure, a privatelyheld biotechnology company based in Uppsala, Sweden, developing PREMIPLEX®, aprotein replacement therapy in Phase 2 development for the prevention ofretinopathy of prematurity ("ROP"). Shire purchased Premacure for an up-frontpayment of $31 million with further potential contingent payments based on theachievement of pre-specified development and commercial milestones. Shire willcontinue the ongoing Phase 2 study, the primary goal of which is to comparethe severity of ROP among patients treated with PREMIPLEX, versus an untreatedcontrol population matched for gestational age. The acquisition of SARcode and Premacure will provide Shire with thefoundation to build a potential new business unit in ophthalmology - a growingmarket with many unmet patient needs. Acquisition of Lotus Tissue Repair, Inc. ("Lotus") - On February 12, 2013 Shire completed the acquisition of Lotus, a privatelyheld biotechnology company, based in Cambridge, MA, with a protein replacementtherapy in pre-clinical development currently being investigated for thetreatment of dystrophic epidermolysis bullosa ("DEB"). DEB is a devastatingorphan disease for which there is no currently approved treatment option otherthan palliative care. Shire purchased the company for an up-front cash paymentof $49 million and further contingent cash payments may be payable in futureperiods, depending on the achievement of certain safety and developmentmilestones. Share buy-back Program - In Q4 2012 Shire commenced a share buy-back program, for the purpose ofreturning funds to shareholders, of up to $500 million, through both directpurchases of Ordinary Shares and through the purchase of Ordinary Sharesunderlying American Depositary Receipts. As of July 24, 2013 Shire had madeon-market repurchases totaling 9,567,253 Ordinary Shares at a cost of $289.9million (excluding transaction costs). Legal Proceedings See Note 13 Commitments and contingencies of this Half YearlyReport for details of Shire's legal proceedings. Dividend In respect of the six months ended June 30, 2013 the Board resolvedto pay an interim dividend of 3.00 US cents per Ordinary Share (2012: 2.73 UScents per Ordinary Share). Dividend payments will be made in Pounds Sterling to holders ofOrdinary Shares and in US Dollars to holders of ADSs. A dividend of 1.95 penceper Ordinary Share (an increase of 12% compared to 2012: 1.74 pence) and 9.00US cents per ADS (an increase of 10% compared to 2012: 8.19 US cents) will bepaid on October 3, 2013 to shareholders on the register as at the close ofbusiness on September 6, 2013. Research and development Products in registration as at June 30, 2013 VYVANSE for the treatment of ADHD in the US On May 1, 2013, Shire announced that the FDA had approved VYVANSE as amaintenance treatment in children and adolescents with ADHD. With this newapproval, VYVANSE is currently the only stimulant approved for maintenancetreatment in children and adolescents ages 6 to 17 years with ADHD, as well asin adults with ADHD. INTUNIV for the treatment of ADHD in Canada On July 5, 2013, Shire received the Notice ofCompliance from Health Canada for INTUNIV XR (guanfacine hydrochlorideextended-release tablets) as monotherapy for the treatment of ADHD in childrenaged 6 to 12 years and as adjunctive therapy to psychostimulants for thetreatment of ADHD in children, aged 6 to 12 years, with a sub-optimal responseto psychostimulants. Products in clinical development as at June 30, 2013 Phase 3 LDX for the treatment of inadequate response in MDD A Phase 3 clinical program to assess the efficacy and safety of LDX asadjunctive therapy in patients with MDD was initiated in the fourth quarter of2011 and is ongoing. LDX for the treatment of binge eating disorder ("BED") A Phase 3 clinical program to evaluate the efficacy and safety of LDX inadults with BED was initiated in the fourth quarter of 2012 and is ongoing. INTUNIV for the treatment of ADHD in the EU INTUNIV for the treatment of ADHD in children aged 6 to 17 in theEU was initiated in the fourth quarter of 2011 and is ongoing. INTUNIV for the treatment of ADHD in Japan Under a collaboration agreement, Shionogi and Shire will co-developand sell ADHD products in Japan, including INTUNIV. A Phase 3 clinical programto evaluate the efficacy and safety of INTUNIV in Japanese patients aged 6 to17 was initiated in the second quarter of 2013. SPD-606 lifitegrast for the treatment of signs and symptoms of dry eye disease Added to the Shire pipeline as part of the SARcode acquisition in the secondquarter of 2013, a Phase 3 clinical program to further assess the efficacy ofSPD 606 for the treatment of signs and symptoms of dry eye disease wasinitiated in the US in the fourth quarter of 2012 and is on-going. XAGRID® for the treatment of essential thrombocythaemia in Japan A Phase 3 clinical program in Japan was initiated in the fourth quarter of2010 to assess the safety and efficacy of XAGRID in adult essentialthrombocythaemia patients treated with cytoreductive therapy who have becomeintolerant to their current therapy or whose platelet counts have not beenreduced to an acceptable level. The program is ongoing. RESOLOR® for the treatment of chronic constipation in males A Phase 3 European clinical trial to further assess the efficacy of RESOLORfor the treatment of chronic constipation in males was initiated in 2010 andis ongoing. SPD-555 (prucalopride; marketed as RESOLOR in the EU) for thetreatment of chronic constipation in the US On January 10, 2012, Shire announced that it had acquired the rights todevelop and market prucalopride in the US in an agreement with JanssenPharmaceutica N.V.. This product is Phase 3-ready and definitive plans will beimplemented following discussions with regulatory authorities. FIRAZYR® for the treatment for Acute Angiotensin Converting EnzymeInhibitor-Induced Angioedema (ACE-I AE) In December 2012, Shire submitted a supplemental Marketing AuthorizationApplication ("MAA"), to the European Medicines Agency ("EMA") seeking approvalfor FIRAZYR for the treatment of ACE-I AE in Europe. Following discussionswith the FDA a US Phase 3 study is expected to commence in the fourth quarterof 2013. ABH001 for the treatment of epidermolysis bullosa ("EB") ABH001 is in development for the treatment of EB, a rare genetic skin diseasethat causes the skin to be so fragile that the slightest friction results inpainful blisters and open wounds. The Group initiated a Phase 3 study in thefourth quarter of 2012 and enrolled the first patient in January 2013. The FDAhas granted Fast Track designation for this program. Phase 2 LDX for the treatment of ADHD in Japan Under a collaboration agreement, Shionogi and Shire will co-develop and sellADHD products in Japan, including LDX. A Phase 2 clinical program to evaluatethe efficacy and safety of LDX in Japanese patients aged 6 to 17 was initiatedin the second quarter of 2013. SPD-554 (selective α2A agonist) for the treatment of various central nervoussystem ("CNS") disorders This program has been discontinued as part of ongoing portfolioprioritization assessments. SPD-557 for the treatment of rGERD This program has been discontinued following review of headlinedata from the proof-of-concept study which did not support continueddevelopment. SPD- 602 iron chelating agent for the treatment of iron overloadsecondary to chronic transfusion A Phase 2 trial in pediatric and adult patients with transfusionaliron overload is ongoing. This product has received orphan drug designation bythe EMA and the FDA for the treatment of chronic iron overload requiringchelation therapy. HGT-2310 for the treatment of Hunter syndrome with CNS symptoms HGT-2310 is in development as an enzyme replacement therapy ("ERT")delivered intrathecally for Hunter syndrome patients with CNS symptoms. TheGroup initiated a Phase 1/2 clinical trial in the first quarter of 2010 whichhas now completed. Shire is currently planning a pivotal clinical trial whichis expected to initiate in the second half of 2013, subject to customaryregulatory interactions with the FDA and EMA. This product has been grantedorphan designation in the US. HGT-1410 for Sanfilippo A Syndrome (Mucopolysaccharidosis IIIA) HGT-1410 is in development as an ERT delivered intrathecally forthe treatment of Sanfilippo A Syndrome, a Lysosomal Storage Disorder ("LSD").The Group initiated a Phase 1/2 clinical trial in August 2010 which has nowcompleted. Shire is currently planning the next clinical trial for HGT-1410,designed to measure a clinical response, which is expected to initiate in thesecond half of 2013, subject to customary regulatory interactions with the FDAand EMA. The product has been granted orphan drug designation in the US and inthe EU. SRM-003 (formerly referred to as VASCUGEL) for the treatment of improvement inpatency of arteriovenous ("AV") access in hemodialysis patients SRM-003 is a novel endothelial cell based therapy in developmentfor enhancing blood vessel repair and improving hemodialysis access forpatients with end-stage renal disease ("ESRD"). This product has been grantedorphan drug designation in the US and the EU. In March 2013, Shire enrolledthe first patients in its two Phase 2 studies designed to evaluate theefficacy and safety of SRM-003 (VASCUGEL) in improving Arteriovenous Fistula(AVF) maturation and AV Graft ("AVG") patency to facilitate hemodialysis inpatients with ESRD. Phase 1 HGT-1110 for the treatment of Metachromatic Leukodystrophy ("MLD") HGT-1110 is in development as an ERT delivered intrathecally for the treatmentof MLD. This product has been granted orphan drug designation in the US andthe EU. The Group initiated a Phase 1/2 clinical trial in August 2012. Thistrial is ongoing. Other pre-clinical development projects A number of additional projects are underway in various stages of pre-clinicaldevelopment. Results of operations for the six months to June 30, 2013 and June 30, 2012 The financial information contained within the Half Yearly Reporthas been prepared under US GAAP, being the accounting principles under whichthe Group will prepare or prepared its annual financial statements for theyears ended December 31, 2013 and 2012. Total revenues The following table provides an analysis of the Group's total revenues bysource: 6 months to 6 months to June 30, June 30, 2013 2012 change $'M $'M % __________________ __________________ __________________Product sales 2,346.9 2,254.6 +4Royalties 74.8 112.6 -34Other revenues 14.7 12.4 +19 __________________ __________________ __________________Total 2,436.4 2,379.6 +2 __________________ __________________ __________________Product sales The following table provides an analysis of the Group's key product sales: 6 months to 6 months to Product Non-GAAP US June 30, June 30, sales CER prescription Exit market 2013 2012 growth growth growth1 share1 $'M $'M % % % %Net product sales: VYVANSE 598.7 526.2 14% +14 +7 16ELAPRASE® 263.5 247.8 6% +9 n/a2 n/a2LIALDA/MEZAVANT 238.0 184.1 29% +29 +13 26REPLAGAL® 228.1 257.6 -11% -10 n/a3 n/a3ADDERALL XR 212.1 245.3 -14% -14 -15 5INTUNIV 168.1 137.6 22% +22 +11 5VPRIV 164.1 154.4 6% +7 n/a2 n/a2PENTASA 144.6 129.7 11% +12 -2 14FIRAZYR 91.2 51.4 77% +77 n/a2 n/a2FOSRENOL® 84.4 88.7 -5% -5 -18 4XAGRID 49.9 48.7 2% +2 n/a n/a2DERMAGRAFT 40.8 101.2 -60% -60 n/a2 n/a2Other product sales 63.4 81.9 -23% -22 n/a n/aTotal product sales 2,346.9 2,254.6 4% (1) Data provided by IMS Health National Prescription Audit ("IMSNPA") relates solely to US-based prescriptions. Exit market share representsthe average monthly US market share in the month ended June 30, 2013. (2) IMS NPA Data not available. (3) Not sold in the US in the six months to June 30, 2013. VYVANSE - ADHD VYVANSE product sales showed strong growth in the first half of 2013, up 14%compared to the first half of 2012, primarily as a result of higherprescription demand (up 7%) and to a lesser extent1 the effect of a priceincrease taken since the first half of 2012, the benefit of which waspartially offset by higher sales deductions and higher destocking in the firsthalf of 2013 compared to the first half of 2012. Litigation proceedings regarding Shire's VYVANSE patents are ongoing. Furtherinformation about this litigation can be found in Note 13 of this Half YearlyReport. 1 The actual net effect of price increases on current period net sales compareto the comparative period is difficult to quantify due to the various managedcare rebates, Medicaid discounts, other discount programs in which the Groupparticipates and fee for service agreements with wholesalers customers. ELAPRASE - Hunter syndrome Product sales from ELAPRASE in the first half of 2013 were up 6% compared tothe first half of 2012, primarily due to growth in underlying patient numbers. LIALDA/MEZAVANT - Ulcerative Colitis Product sales for LIALDA/MEZAVANT showed strong growth in the first half of2013, up 29%. Increased prescription demand (up 13% in the US) benefited fromnew Managed Care contracts in the US. First half of 2013 sales also benefitedfrom lower de-stocking compared to the first half of 2012. To a lesser extent1sales also benefited from the effect of a price increase taken since the firsthalf of 2012, offset by the effect of higher US sales deductions. Litigation proceedings regarding Shire's LIALDA patents are ongoing. Furtherinformation about this litigation can be found in Note 13 of this Half YearlyReport. REPLAGAL - Fabry disease REPLAGAL revenues were down 11% compared to the first half of 2012, primarilydue to the return of competition to the Fabry market in Europe and the timingof certain shipments which have distorted quarter on quarter growth rates inboth 2013 and 2012. However, recent positive trends in the patient dynamicsindicate that the impact of switches to the competitor product is diminishingand Shire continues to see strong growth in the number of new naïve patientsstarting on REPLAGAL globally. ADDERALL XR - ADHD ADDERALL XR product sales decreased in the first half of 2013 (down14%) compared to the first half of 2012, primarily as a result of lower USprescription demand (down 15%) following the introduction of a new genericcompetitor in June 2012 and the effect of higher sales deductions. Litigation proceedings regarding Shire's ADDERALL XR patents areongoing. Further information about this litigation can be found in Note 13 ofthis Half Yearly Report. INTUNIV - ADHD The strong growth in INTUNIV product sales (up 22%) in the firsthalf of 2013 was driven by both growth in US prescription demand and theeffect1 of price increases taken since the first half of 2012, the benefit ofwhich was partially offset by higher sales deductions and higher destocking inthe first half of 2013 compared to the first half of 2012. Further information about litigation proceedings regarding Shire's INTUNIVpatents can be found in Note 13 of this Half Yearly Report. VPRIV - Gaucher disease VPRIV product sales increased by 6% in the first half of 2013,primarily due to the continued growth in the number of patients on therapy. PENTASA - Ulcerative Colitis PENTASA product sales (up 11%) benefited from both price increases1 takensince the first half of 2012 and the impact of moderate stocking in the firsthalf of 2013 compared to a small amount of pipeline destocking in the firsthalf of 2012. FIRAZYR - Hereditary Angioedema ("HAE") FIRAZYR product sales (up 77%) showed strong growth reflecting thecontinuing global growth of the product, particularly in the US market. DERMAGRAFT - DFU DERMAGRAFT product sales in the first half of 2013 were down by 60% comparedto the first half of 2012, reflecting the impact of restructuring of the salesand marketing organization and the implementation of a new commercial modelwhich has recently been completed. 1 The actual net effect of price increases on current period net sales compareto the comparative period is difficult to quantify due to the various managedcare rebates, Medicaid discounts, other discount programs in which the Groupparticipates and fee for service agreements with wholesalers customers. Royalties The following table provides an analysis of Shire's royalty income: 6 months to 6 months to June 30, June 30, 2013 2012 Change $'M $'M % ____________ ____________ ___________3TC and ZEFFIX 23.8 24.2 -2FOSRENOL 19.8 23.0 -14ADDERALL XR 13.0 51.0 -75Other 18.2 14.4 +26 ____________ ____________ __________Total royalties 74.8 112.6 -34 ____________ ____________ __________ Royalties from ADDERALL XR in the first half of 2013 weresignificantly impacted by both reduced sales volume and a lower royalty ratebeing payable to Shire by Impax Laboratories, Inc. for its authorised genericproduct following the launch of a new generic product in June 2012. Cost of product sales Cost of product sales increased to $331.6 million for the six months to June30, 2013 (14% of product sales), up from $310.9 million in the correspondingperiod in 2012 (2012: 14% of product sales). Cost of product sales as apercentage of product sales remained constant. For the six months to June 30, 2013 cost of product sales includeddepreciation of $17.8 million (2012: $14.2 million) and amortization of $nil(2012: $0.7 million). R&D R&D expenditure increased to $484.3 million for the six months toJune 30, 2013 (21% of product sales), compared to $458.9 million in thecorresponding period in 2012 (20% of product sales). In the six months to June30, 2012 R&D included payments of $23.0 million in respect of in-licensed andacquired products and intangible asset impairment charges of $27.0 millioncompared to impairment charges of $19.9 million in 2013. Excluding these costsR&D increased by $56 million or 14% due to the Group's continued investment inits R&D pipeline, primarily on non-ADHD programs for LDX, SPD-602 for ironoverload and development programs acquired through business development in2013. R&D in the six months to June 30, 2013 included depreciation of $8.9 million(2012: $12.8 million), and impairment charges in respect of the Group'sRESOLOR in process research and development ("IPR&D") intangible assets of$19.9 million (2012: $27.0 million). Selling, General and Administrative ("SG&A") SG&A expenditure decreased to $896.3 million (38% of product sales) for thesix months to June 30, 2013 from $1,011.0 million (45% of product sales) inthe corresponding period in 2012, primarily due to the Group's continuingfocus on simplifying its business and delivering efficient growth. In the sixmonths to June 30, 2012 SG&A also included higher legal and litigation costsand higher intangible amortization expense which were not incurred in the sameperiod in 2013. For the six months to June 30, 2013 SG&A included depreciation of $32.8million (2012: $28.1 million) and amortization of $91.7 million (2012: $96.6million). Goodwill impairment charges For the six months to June 30, 2013 Shire recorded an impairment charge forgoodwill of $198.9 million (2012: $nil) relating to Shire's RegenerativeMedicine ("RM") business. Following a review of future forecasts for the RMbusiness unit, management determined in the first quarter of 2013 that futuresales were expected to be lower than anticipated at the time of acquisitionand consequently in accordance with US GAAP, it was determined that thegoodwill attributable to the RM business unit was impaired. Whilst futureexpectations for long term growth of DERMAGRAFT have been revised downwards,the Group still expects the product to return to growth over coming quarters. Gain on sale of product rights For the six months to June 30, 2013 Shire recorded a gain on saleof product rights of $11.0 million (2012: $10.8 million) followingre-measurement of the contingent consideration receivable from the divestmentof DAYTRANA. Reorganization costs For the six months to June 30, 2013 Shire recorded reorganization costs of$43.9 million (2012: $nil), relating to the collective dismissal and businessclosure at Turnhout, Belgium and the "One Shire" reorganization as the Grouptransitions to a new operating structure. Integration and acquisition costs For the six months to June 30, 2013 Shire recorded integration and acquisitioncosts of $21.5 million primarily associated with the acquisitions of SARcodeand Lotus and the integration of FerroKin in addition to charges related tothe change in fair value of contingent consideration. In 2012 integration andacquisition costs ($12.4 million) primarily related to the acquisition ofFerroKin and integration of Advanced BioHealing Inc. ("ABH"). Interest expense For the six months to June 30, 2013 Shire incurred interest expenseof $18.0 million (2012: $19.8 million), principally relates to the coupon onShire's $1,100 million 2.75% convertible bonds due 2014. Taxation For interim reporting purposes, the Group calculates its taxexpense by estimating its global annual effective tax rate and applies thatrate in providing for income taxes on a year-to-date basis. The Group hascalculated an expected annual effective tax rate, excluding significant,unusual or extraordinary items, and the tax effect of jurisdictions withlosses for which a tax benefit cannot be recognized. In the six months to June30, 2013 the effective tax rate was 29% (2012: 18%). The effective rate of taxin the six months to June 30, 2013 was higher than the six months to June 30,2012 primarily due to the impact of the RM goodwill impairment charge (whichis not deductible for tax purposes), an increase in unrecognized tax losses,adverse changes in profit mix and changes in estimates of the amount ofcertain tax liabilities following the finalization of various tax returns.These factors were partially offset by the recognition of the 2012 US R&Dcredit in the first quarter of 2013. The US R&D credit was recognizedfollowing the enactment of legislation on January 2, 2013, approving theextension of the regular R&D credit retrospectively. Financial condition at June 30, 2013 and December 31, 2012 Accounts receivable, net Accounts receivable, net increased by $91.0 million to $915.2 million(December 31, 2012: $824.2 million), primarily due to the increase in revenuein the second quarter of 2013. Days sales outstanding remained constant at 50days (December 31, 2012: 50 days). Other intangible assets, net Other intangible assets increased by $610.0 million to $2,998.1 million(December 31, 2012: $2,388.1 million), due to the IPR&D assets acquired withSARcode, Premacure and Lotus, offset by intangible asset amortization, IPR&Dimpairment and foreign exchange movements. Convertible bonds Current liabilities have increased by $1,100 million due to thereclassification of the Group's $1,100 million 2.75% convertible bonds due2014 (the "Bonds") from non-current to current liabilities in 2013 as theGroup is required to redeem the Bonds within twelve months of the balancesheet date. Non-current deferred tax liabilities Non-current deferred tax liabilities increased by $210.6 million to $731.4million (December 31, 2012: $520.8 million), primarily due to deferred taxliabilities arising on the IPR&D assets acquired with SARcode, Premacure andLotus. Other non-current liabilities Other non-current liabilities increased by $382.9 million to $624.5 million(December 31, 2012: $241.6 million) primarily due to the recognition ofnon-current contingent consideration payable related to the SARcode, Premacureand Lotus business combinations. Liquidity and capital resources General The Group's funding requirements depend on a number of factors,including the timing and extent of its development programs; corporate,business and product acquisitions; the level of resources required for theexpansion of certain manufacturing and marketing capabilities as the productbase expands; increases in accounts receivable and inventory which may arisewith any increase in product sales; competitive and technologicaldevelopments; the timing and cost of obtaining required regulatory approvalsfor new products; the timing and quantum of milestone payments oncollaborative projects; the timing and quantum of tax and dividend payments;the timing and quantum of purchases by the Employee Benefit Trust ("EBT") ofShire shares in the market to satisfy awards granted under Shire's employeeshare plans; the timing and quantum of purchases of Shire shares under theshare buy-back program; and the amount of cash generated from sales of Shire'sproducts and royalty receipts. An important part of Shire's business strategy is to protect its products andtechnologies through the use of patents, proprietary technologies andtrademarks, to the extent available. The Group intends to defend itsintellectual property and as a result may need cash for funding the cost oflitigation. The Group finances its activities through cash generated from operatingactivities; credit facilities; private and public offerings of equity and debtsecurities; and the proceeds of asset or investment disposals. Shire's balance sheet includes $1,301.9 million of cash and cash equivalentsat June 30, 2013. Substantially all of Shire's debt relates to its Bonds. Inaddition, Shire has a revolving credit facility of $1,200 million whichmatures in 2015 (the "RCF"), which is currently undrawn. Financing Shire anticipates that its operating cash flow together with available cash,cash equivalents and the RCF will be sufficient to meet its anticipated futureoperating expenses, share buy-back program, capital expenditures, tax andinterest payments, lease obligations and milestone payments as they become dueover the next twelve months. If the Group decides to acquire other businesses, it expects to fund theseacquisitions from existing cash resources, the RCF and possibly through newborrowings and the issue of new equity if necessary. Share buy-back program Shire has a strong balance sheet and continued robust cash generation, andconsiders efficient use of capital on behalf of shareholders an importantobjective. Therefore, during the year to December 31, 2012 the Group commenceda share buy-back program, for the purpose of returning funds to shareholders,of up to $500 million through both direct purchases of Ordinary Shares andthrough the purchase of Ordinary Shares underlying American DepositoryReceipts. At June 30, 2013 the Group had made on-market repurchases totaling 9,432,043Ordinary Shares at a cost of $285.5 million (excluding transaction costs).This represents 1.68% of the issued share capital of the Group as at June 30,2013. Ordinary Shares purchased may be cancelled or be held as treasuryshares, in accordance with the authority renewed by shareholders at theGroup's Annual General Meeting ("AGM"). At its AGM on April 24, 2012 the Groupwas authorized to make market purchases of up to 56,253,208 of its ownOrdinary Shares. That authority expired at the AGM held on April 30, 2013 andwas renewed. Under the new authority, which expires at the 2014 AGM, the Groupwas authorized to make market purchases of up to 55,741,587 of its ownOrdinary Shares. Sources and uses of cash The following table provides an analysis of the Group's gross and net cash/debt position (excluding restricted cash), as at June 30, 2013 and December31, 2012: June 30, December 31, 2013 2012 $'M $'M _________________ _________________Cash and cash equivalents1 1,301.9 1,482.2 _________________ _________________Convertible bonds 1,100.0 1,100.0Other 8.9 9.3 _________________ _________________Total debt 1,108.9 1,109.3 _________________ _________________Net cash 193.0 372.9 _________________ _________________ (1) Substantially all of the Group's cash and cash equivalents areheld by foreign subsidiaries (i.e. those subsidiaries incorporated outside ofJersey, Channel Islands, the jurisdiction of incorporation of Shire plc,Shire's holding company). The amount of cash and cash equivalents held byforeign subsidiaries has not had, and is not expected to have, a materialimpact on the Group's liquidity and capital resources. Cash flow activity Net cash provided by operating activities for the six months to June 30, 2013decreased by 42% or $303.8 million to $419.0 million (2012: $722.8 million),as higher cash receipts from gross product sales were more than offset byhigher cash tax payments, lower royalty receipts, the payment to settle thelitigation with Impax ($48 million) (see note 13 for details), the timing ofreceipts from large distributors in the US and the timing of operatingexpenses payments. The second quarter of 2012 also included strong cashreceipts from government-supported healthcare providers in Spain. Net cash used in investing activities was $279.3 million in the six months toJune 30, 2013, principally relating to the cash paid (net of cash acquired)for the acquisitions of SARcode, Premacure and Lotus and for purchases ofProperty, plant and equipment ("PP&E"). Net cash used in investing activities was $179.9 million in the six months toJune 30, 2012, relating to the payment of $97.0 million to acquire Ferrokinand certain assets and liabilities from Pervasis, $43.5 million for thepurchase of intangible assets, and $64.4 million on the purchase of PP&E. Net cash used in financing activities was $317.1 million for the six months toJune 30, 2013, principally due to the purchase of shares under the sharebuy-back program, purchase of shares by the EBT and the dividend payment. Net cash used in financing activities was $48.6 million for the six months toJune 30, 2012, principally due to the dividend payment and the purchase ofshares by the EBT, which more than offset the excess tax benefit associatedwith the exercise of stock options. Obligations and commitments During the six months to June 30, 2013 there have been no material changesoutside the ordinary course of the Group's business to the contractualobligations previously disclosed in the Financial review of Shire's AnnualReport and Accounts for the year ended December 31, 2012. Principal risks and uncertainties The Group has adopted a risk management strategy designed toidentify, assess and manage the significant risks that it faces. While theGroup aims to identify and manage such risks, no risk management strategy canprovide absolute assurance against loss. The principal risks and uncertaintiesaffecting the Group for the remaining six months of 2013 are those describedunder the headings below. It is not anticipated that the nature of theprincipal risks and uncertainties disclosed in the Annual Report and Accountsof Shire plc for the year ended December 31, 2012 will change in respect ofthe second half of 2013. The Group's process for managing these risks is consistent withthose processes as outlined in the Annual Report and Accounts of Shire plc forthe year ended December 31, 2012. Some of these risks are specific to theGroup and others are more generally applicable to the pharmaceutical industryor specific markets in which the Group operates. The Annual Report andAccounts are available on the Group's website, www.shire.com. In summary, these risks and uncertainties were as follows: Risk factors related to Shire's business: - The Group's products may not be a commercial success - Revenues from ADDERALL XR are subject to generic erosion - The failure to obtain and maintain reimbursement, or an adequate level ofreimbursement, by third-party payors in a timely manner for the Group'sproducts may impact future revenues and earnings - The Group relies on a single source for manufacture of certain of itsproducts. A disruption to the supply chain for these products may result inthe Group being unable to continue marketing or developing a product or mayresult in the Group being unable to do so on a commercially viable basis - The Group uses third party manufacturers to manufacture many of its productsand is reliant upon third party contractors for certain goods and services.Any inability of these third party manufacturers to manufacture products, orany failure of these third party contractors to provide these goods andservices, in each case in accordance with its respective contractualobligations, could adversely affect the Group's ability to manage itsmanufacturing processes or to operate its business - The development, approval and manufacturing of the Group's products issubject to extensive oversight by various regulatory agencies - The actions of certain customers could affect the Group's ability to sell ormarket products profitably. Fluctuations in buying or distribution patterns bysuch customers can adversely impact the Group's revenues, financial conditionsor results of operations - Investigations or enforcement action by regulatory authorities or lawenforcement agencies relating to the Group's activities in the highlyregulated markets in which it operates may result in the distraction of seniormanagement, significant legal costs and the payment of substantialcompensation or fines - Adverse outcomes in legal matters and other disputes could have a materialadverse effect on the Group's revenues, financial condition or results ofoperations Risk factors related to the pharmaceutical industry in general: - The actions of governments, industry regulators and the economicenvironments in which the Group operates may adversely affect its ability todevelop and profitably market its products - A slowdown of global economic growth, or continued instability of theEurozone, could have negative consequences for the Group's business andincrease the risk of nonpayment by the Group's customers - The introduction of new products by competitors may impact future revenues - The successful development of products is highly uncertain and requiressignificant expenditures and time - The failure of a strategic partner to develop and commercialize productscould result in delays in development, approval or loss of revenue - The failure to secure new products or compounds for development, eitherthrough in-licensing, acquisition or internal research and developmentefforts, or the failure to realize expected benefits from acquisitions ofbusinesses or products, may have an adverse impact on the Group's futureresults - The Group may fail to obtain, maintain, enforce or defend the intellectualproperty rights required to conduct its business - If a marketed product fails to work effectively or causes adverseside-effects, this could result in damage to the Group's reputation, thewithdrawal of the product and legal action against the Group - Loss of highly qualified personnel could cause the Group subsequentfinancial loss Directors' responsibility statement The Directors confirm that this condensed consolidated set offinancial statements has been prepared in accordance with US GAAP and that theHalf Yearly Report herein includes a fair review of the information requiredby DTR 4.2.7R and DTR 4.2.8R. The Directors of Shire plc are listed in Shire's Annual Report andAccounts for the year ended December 31, 2012. Details of all current Directors are available on Shire's websiteat www.shire.com. On behalf of the Board: Flemming Ornskov, M.D. Graham HetheringtonChief Executive Chief FinancialOfficer Officer August 9, 2013 August 9, 2013Unaudited consolidated balance sheets June 30, December 31, 2013 2012 Notes $'M $'M _________ _______________ _______________ASSETSCurrent assets:Cash and cash equivalents 1,301.9 1,482.2Restricted cash 17.6 17.1Accounts receivable, net 4 915.2 824.2Inventories 5 492.2 436.9Deferred tax asset 212.5 229.9Prepaid expenses and other current assets 6 289.1 221.8 _______________ _______________Total current assets 3,228.5 3,212.1 Non-current assets:Investments 33.2 38.7Property, plant and equipment, net 953.1 955.8Goodwill 7 611.6 644.5Other intangible assets, net 8 2,998.1 2,388.1Deferred tax asset 44.5 46.5Other non-current assets 33.9 31.5 _______________ _______________Total assets 7,902.9 7,317.2 _______________ _______________LIABILITIES AND EQUITYCurrent liabilities:Accounts payable and accrued expenses 9 1,456.7 1,501.5Convertible bonds 10 1,100.0 -Other current liabilities 11 158.8 144.1 _______________ _______________Total current liabilities 2,715.5 1,645.6 Non-current liabilities:Convertible bonds 10 - 1,100.0Deferred tax liability 731.4 520.8Other non-current liabilities 12 624.5 241.6 _______________ _______________Total liabilities 4,071.4 3,508.0 _______________ _______________Commitments and contingencies 13 - - Unaudited consolidated balance sheets (continued) June 30, December 31, 2013 2012 Notes $'M $'M ___________ _____________ _____________ Equity:Common stock of 5p par value; 1,000 million sharesauthorized; and562.8 million shares issued and outstanding (2012:1,000 millionshares authorized; and 562.5 million shares issuedand outstanding) 55.8 55.7Additional paid-in capital 3,024.1 2,981.5Treasury stock: 14.5 million shares (2012: 10.7million shares) (476.9) (310.4)Accumulated other comprehensive income 14 52.2 86.9Retained earnings 1,176.3 995.5 ________________ ________________Total equity 3,831.5 3,809.2 ________________ ________________Total liabilities and equity 7,902.9 7,317.2 ________________ ________________ The accompanying notes are an integral part of these unaudited consolidatedfinancial statements. Unaudited consolidated statements of income 6 months to 6 months to June 30, June 30, 2013 2012 Notes $'M $'MRevenues: _______ _______________ _______________Product sales 2,346.9 2,254.6Royalties 74.8 112.6Other revenues 14.7 12.4 _______________ _______________Total revenues 2,436.4 2,379.6 _______________ _______________Costs and expenses:Cost of product sales 331.6 310.9Research and development ("R&D")(1) 484.3 458.9Selling, general and administrative("SG&A")(1) 896.3 1,011.0Goodwill impairment charge 7 198.9 -Gain on sale of product rights (11.0) (10.8)Reorganization costs 3 43.9 -Integration and acquisition costs 21.5 12.4 _______________ _______________Total operating expenses 1,965.5 1,782.4 _______________ _______________ Operating income 470.9 597.2 Interest income 1.2 1.4Interest expense (18.0) (19.8)Other (expense)/ income, net (2.5) 0.1 _______________ _______________Total other expense, net (19.3) (18.3) _______________ _______________Income before income taxes and equityin earnings of equity methodinvestees 451.6 578.9Income taxes (129.6) (103.0)Equity in earnings of equity methodinvestees, net of taxes 0.9 0.3 _______________ _______________Net income 322.9 476.2 _______________ _______________Earnings per ordinary share - basic 58.6c 85.8c _______________ _______________Earnings per ordinary share - diluted 57.5c 82.8c _______________ _______________Weighted average number of shares (millions):Basic 550.5 555.2Diluted 587.5 594.8 _______________ _______________ (1) R&D includes intangible asset impairment charges of $19.9 million (2012:$27.0 million) for the six months to June 30, 2013. SG&A costs includesamortization of intangible assets relating to intellectual property rightsacquired of $91.7 million for the six months to June 30, 2013 (2012: $96.6million). The accompanying notes are an integral part of these unaudited consolidatedfinancial statements. Unaudited consolidated statement of comprehensive income 6 months to 6 months to June 30, June 30, 2013 2012 $'M $'M _______________ _______________ Net income 322.9 476.2Other comprehensive income: Foreign currency translation adjustments (34.5) (17.7) Unrealized holding gain/(loss) on available-for-sale securities (net of taxes of $1.1 million and $2.9 million) (0.2) 6.0 _______________ _______________Comprehensive income 288.2 464.5 _______________ _______________ The components of accumulated other comprehensive income as at June 30, 2013and December 31, 2012 are as follows: June 30, December 31, 2013 2012 $'M $'M _______________ _______________Foreign currency translation adjustments 50.6 85.1Unrealized holding gain on available-for-sale securities, netof taxes 1.6 1.8 ________________ ________________Accumulated other comprehensive income 52.2 86.9 ________________ ________________ The accompanying notes are an integral part of these unaudited consolidatedfinancial statements. Unaudited consolidated statement of changes in equity (In millions of US dollars except share data) Shire plc shareholders' equity Common Accumulated stock Additional other Number Common paid-in Treasury comprehensive Retained Total of shares stock capital stock income earnings equity M's $'M $'M $'M $'M $'M $'MAs at January 1,2013 562.5 55.7 2,981.5 (310.4) 86.9 995.5 3,809.2Net income - - - - - 322.9 322.9Foreign currencytranslation - - - - (34.5) - (34.5)Options exercised 0.3 0.1 - - - - 0.1Share-basedcompensation - - 37.2 - - - 37.2 Tax benefitassociatedwith exercise ofstockoptions - - 5.4 - - - 5.4Shares purchasedbyemployee benefittrust("EBT") - - - (50.0) - - (50.0) Shares purchasedunder sharebuy-backprogram - - - (179.3) - - (179.3)Shares released byEBTto satisfyexercise ofstock options - - - 62.8 - (62.9) (0.1) Unrealized holdinglossonavailable-for-salesecurities, net oftaxes - - - - (0.2) - (0.2)Dividends - - - - - (79.2) (79.2)As at June 30,2013 562.8 55.8 3,024.1 (476.9) 52.2 1,176.3 3,831.5 The accompanying notes are an integral part of these unaudited consolidatedfinancial statements. Dividends per share During the six months to June 30, 2013 Shire plc declared and paid dividendsof 14.60 US cents per ordinary share (equivalent to 43.80 US cents per ADS)totalling $79.2 million. Unaudited consolidated statements of cash flows 6 months to June 30, 2013 2012 $'M $'M _____________ _____________CASH FLOWS FROM OPERATING ACTIVITIES:Net income 322.9 476.2Adjustments to reconcile net income to net cash provided by operatingactivities: Depreciation and amortization 151.2 152.4 Share based compensation 36.4 43.4 Impairment of intangible assets 19.9 27.0 Goodwill impairment charge1 198.9 - Gain on sale of product rights (11.0) (10.8) Other 20.9 4.3Movement in deferred taxes 21.2 (24.1)Equity in earnings of equity method investees (0.9) (0.3) Changes in operating assets and liabilities: (Increase)/decrease in accounts receivable (102.6) 22.4 Increase in sales deduction accrual 40.0 27.6 Increase in inventory (53.9) (67.0) (Increase)/decrease in prepayments and other assets (66.5) 32.1 (Decrease)/increase in accounts and notes payable and other (160.7) 34.7 liabilitiesReturns on investment from joint venture 3.2 4.9 ______________ ______________Net cash provided by operating activities (A) 419.0 722.8 ______________ ______________ CASH FLOWS FROM INVESTING ACTIVITIES:Movements in restricted cash (0.5) 6.2Purchases of subsidiary undertakings and businesses, net of cashacquired (227.8) (97.0)Purchases of property, plant and equipment ("PP&E") (65.0) (64.4)Purchases of intangible assets - (43.5)Proceeds received on sale of product rights 10.3 10.4Returns from equity investments 3.7 8.4 _____________ _____________Net cash used in investing activities (B) (279.3) (179.9) _____________ _____________ Unaudited consolidated statements of cash flows 2013 2012 $'M $'M ____________ __________CASH FLOWS FROM FINANCING ACTIVITIES:Payments to acquire shares under share buy-back program (177.7) -Payment of dividend (79.2) (70.7)Payments to acquire shares by the Employee Benefit Trust("EBT") (50.0) (10.7)Excess tax benefit associated with exercise of stock options 6.1 35.2Contingent consideration payments (8.8) -Other (7.5) (2.4) _____________ ___________Net cash used in financing activities(C) (317.1) (48.6) _____________ ___________Effect of foreign exchange rate changes on cash and cashequivalents (D) (2.9) (1.6) _____________ ___________Net (decrease)/increase in cash and cash equivalents (A+B+C+D) (180.3) 492.7Cash and cash equivalents at beginning of period 1,482.2 620.0 _____________ _____________Cash and cash equivalents at end of period 1,301.9 1,112.7 _____________ ___________Supplemental information associated with continuingoperations: 6 months to June 30, 2013 2012 $'M $'M _____________ _____________ Interest paid (16.9) (17.3)Income taxes paid (196.8) (68.3) _____________ _____________ The accompanying notes are an integral part of these unauditedconsolidated financial statements. Notes to the unaudited consolidated financial statements 1. Summary of Significant Accounting Policies (a) Basis of preparation These interim financial statements of Shire and other financial informationincluded in this Half Yearly Report are unaudited. They have been prepared inaccordance with generally accepted accounting principles in the United Statesof America ("US GAAP") and US Securities and Exchange Commission ("SEC")regulations for interim reporting. The balance sheet as at December 31, 2012 was derived from audited financialstatements but does not include all disclosures required by US GAAP. These interim financial statements should be read in conjunction with theconsolidated financial statements and accompanying notes included in Shire'sAnnual Report and Accounts for the year to December 31, 2012. Certain information and footnote disclosures normally included in financialstatements prepared in accordance with US GAAP have been condensed or omittedfrom these interim financial statements. However, these interim financialstatements include all adjustments, which are, in the opinion of management,necessary to fairly state the results of the interim period and the Groupbelieves that the disclosures are adequate to make the information presentednot misleading. Interim results are not necessarily indicative of results tobe expected for the full year. The Directors have a reasonable expectation that the Group has adequateresources to continue in operational existence for the foreseeable future.Thus they continue to adopt the going concern basis of accounting in preparingthe Half Yearly Report. (b) Use of estimates in interim financial statements The preparation of interim financial statements, in conformity with US GAAPand SEC regulations, requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities, disclosure ofcontingent assets and liabilities at the date of the consolidated financialstatements and reported amounts of revenues and expenses during the reportingperiod. Estimates and assumptions are primarily made in relation to thevaluation of intangible assets, the valuation of equity investments, salesdeductions, income taxes (including provisions for uncertain tax positions andthe realization of deferred tax assets), provisions for litigation and legalproceedings, contingent consideration receivable from product divestments andcontingent consideration payable in respect of business combinations and assetpurchases. If actual results differ from the Group's estimates, or to theextent these estimates are adjusted in future periods, the Group's results ofoperations could either benefit from, or be adversely affected by, any suchchange in estimate. (c) New accounting pronouncements Adopted during the period Indefinite-Lived Intangible Assets (Other than Goodwill) Impairment Testing In July 2012 the Financial Accounting Standard Board ("FASB") issued guidanceon the testing of indefinite-lived intangible assets for impairment. Theguidance permits an entity to first assess qualitative factors to determinewhether the existence of events or circumstances leads to a determination thatit is more likely than not that the fair value of an indefinite-livedintangible asset is less than its carrying amount. If, after assessing thetotality of events or circumstances, an entity determines it is not morelikely than not that the fair value of an indefinite-lived intangible asset isless than its carrying amount, performing the impairment test is unnecessary.The more-likely-than-not threshold is defined as a likelihood of more than 50percent. An entity also has the option to bypass the qualitative assessmentfor any indefinite-lived intangible asset in any period and proceed directlyto performing the impairment test and may resume performing the qualitativeassessment in any subsequent period. The guidance has been adoptedprospectively from January 1, 2013. The adoption of the guidance did notimpact the Group's consolidated financial position, results of operations orcash flows. Disclosure about offsetting assets and liabilities In December 2011 the FASB issued guidance on disclosures about offsettingassets and liabilities. In January 2013 the FASB amended the previous guidanceto clarify the scope of guidance issued in December 2011. The amended guidancerequires entities to disclose both gross and net information about derivativesincluding bifurcated embedded derivatives, repurchase agreements and reverserepurchase agreements, and securities borrowing and securities lendingtransactions that are either offset in accordance with FASB guidance on topics"Balance Sheet" and "Derivatives and Hedging" or subject to an enforceablemaster netting arrangement or similar agreement; to enable users of financialstatements to understand the effects or potential effects of thosearrangements on its financial position. The guidance has been adoptedprospectively from January 1, 2013. The adoption of the guidance did notimpact the Group's consolidated financial position, results of operations orcash flows. Enhanced disclosure of balance sheet offsetting as required bythis guidance is included in Note 15. Amounts reclassified out of Comprehensive Income In February 2013 the FASB issued guidance on reporting amounts reclassifiedout of accumulated other comprehensive income. The guidance requires entitiesto provide information about the amount reclassified out of comprehensiveincome by component and presents either on the face of the financialstatements or in the notes, significant amounts reclassified out of othercomprehensive income by the respective line items of net income, but only ifthe amount reclassified is required under US GAAP to be reclassified to netincome in its entirety in the same reporting period. For other amounts thatare not required under US GAAP to be reclassified in their entirety to netincome, an entity is required to cross-reference to other disclosures requiredunder US GAAP that provide additional detail about those amounts. The guidancehas been adopted prospectively from January 1, 2013. The adoption of theguidance did not impact the Group's consolidated financial position, resultsof operations or cash flows. 2. Business combinations Acquisition of SARcode Bioscience Inc. ("SARcode") On April 17, 2013 Shire completed the acquisition of 100% of the outstandingshare capital of SARcode. The acquisition date fair value of the considerationtotaled $368 million, comprising cash consideration paid on closing of $151million and the fair value of contingent consideration payable of $217million. The maximum amount of contingent cash consideration which may bepayable by Shire in future periods is $525 million dependent upon achievementof certain clinical, regulatory and net sales milestones. This acquisition brings the new Phase 3 compound, lifitegrast, currently underdevelopment for the signs and symptoms of dry eye disease, into Shire'sportfolio. Shire anticipates launching lifitegrast in the United States asearly as 2016 pending a positive outcome of the Phase 3 clinical developmentprogram and regulatory approvals. Shire is acquiring the global rights tolifitegrast and will evaluate an appropriate regulatory filing strategy formarkets outside of the United States. The acquisition of SARcode has been accounted as a business combination usingthe acquisition method. The assets and liabilities assumed from SARcode havebeen recorded at their preliminary fair values at the date of acquisition,being April 17, 2013. The Group's consolidated financial statement and resultsof operations include the result of SARcode from April 17, 2013. The purchase price allocation is preliminary pending the determination of thefair values of certain assets and liabilities assumed. The purchase price hasbeen allocated on a preliminary basis to acquired IPR&D in respect oflifitegrast ($412 million), net current liabilities assumed ($8.2 million),net non-current liabilities assumed (including deferred tax liabilities)($122.4 million) and goodwill ($86.6 million). The final determination ofthese fair values will be completed as soon as possible but no later than oneyear from the acquisition date. Goodwill arising of $86.6 million, which isnot deductible for tax purposes, has been assigned to the SpecialtyPharmaceuticals ("SP") operating segment. Goodwill includes the value of theassembled workforce and the related scientific expertise in ophthalmologywhich allows for potential expansion into a new therapeutic area. In the six months to June 30, 2013 the Group has expensed costs of $4.6million (2012: $nil) relating to the SARcode acquisition, which have beenrecorded within integration and acquisition costs in the Group's consolidatedincome statement. Acquisition of Premacure AB ("Premacure") On March 8, 2013 Shire completed the acquisition of 100% of the outstandingshare capital of Premacure. The acquisition date fair value of theconsideration totaled $140.2 million, comprising cash consideration paid onclosing of $30.6 million, and the fair value of contingent considerationpayable of $109.6 million. The maximum amount of contingent cash considerationwhich may be payable by Shire in future periods, dependent upon the successfulcompletion of certain development and commercial milestones, is $169 million.Shire will also pay royalties on relevant net sales. Premacure is developing a protein replacement therapy ("PREMIPLEX"), currentlyin Phase 2 development, for the prevention of Retinopathy of Prematurity("ROP"). ROP is a rare and potentially blinding eye disorder that primarilyaffects premature infants and is one of the most common causes of visual lossin childhood. Together, the acquisitions of SARcode and Premacure buildShire's presence in the ophthalmology therapeutic area. The acquisition of Premacure has been accounted for as a business combinationusing the acquisition method. The assets and the liabilities assumed fromPremacure have been recorded at their preliminary fair values at the date ofacquisition, being March 8, 2013. The Group's consolidated financialstatements and results of operations include the results of Premacure fromMarch 8, 2013. The purchase price allocation is preliminary pending final determination ofthe fair values of certain assets acquired and liabilities assumed. Thepurchase price has been allocated on a preliminary basis to acquired IPR&D inrespect of PREMIPLEX ($151.8 million), net current liabilities assumed ($11.7million), net non-current liabilities assumed (including deferred taxliabilities) ($29.5 million) and goodwill ($29.6 million). The finaldetermination of these fair values will be completed as soon as possible butno later than one year from the acquisition date. Goodwill arising of $29.6million, which is not deductible for tax purposes, has been assigned to theHuman Genetic Therapies ("HGT") operating segment. In the six months to June 30, 2013 the Group expensed costs of $4.2million (2012: nil) relating to the Premacure acquisition, which have beenrecorded within integration and acquisition costs in the Group's consolidatedincome statement. Acquisition of Lotus Tissue Repair, Inc ("Lotus") On February 12, 2013 Shire completed the acquisition of 100% of theoutstanding share capital of Lotus. The acquisition date fair value ofconsideration totaled $174.2 million, comprising cash consideration paid onclosing of $49.4 million, and the fair value of contingent considerationpayable of $124.8 million. The maximum amount of contingent cash considerationwhich may be payable by Shire in future periods is $275 million. The amount ofcontingent cash consideration ultimately payable by Shire is dependent uponachievement of certain pre-clinical and clinical development milestones. Lotus is developing a proprietary recombinant form of human collagen Type VII("rC7") as the first and only intravenous protein replacement therapycurrently being investigated for the treatment of Dystrophic EpidermolysisBullosa ("DEB"). DEB is a devastating orphan disease for which there is nocurrently approved treatment option other than palliative care. Theacquisition adds to Shire's pipeline a late stage pre-clinical product for thetreatment of DEB with global rights. This acquisition is complementary toShire's existing investment in developing ABH001, which is currently beinginvestigated as a dermal substitute therapy for the treatment of non-healingwounds in patients with Epidermolysis Bullosa ("EB"). The acquisition of Lotus has been accounted for as a business combinationusing the acquisition method. The assets and the liabilities assumed fromLotus have been recorded at their preliminary fair values at the date ofacquisition, being February 12, 2013. The Group's consolidated financialstatements and results of operations include the results of Lotus fromFebruary 12, 2013. The purchase price allocation is preliminary pending final determination ofthe fair values of certain assets acquired and liabilities assumed. Thepurchase price has been allocated on a preliminary basis to acquired IPR&D inrespect of rC7 ($176.7 million), net current assets assumed ($6.8 million),net non-current liabilities assumed (including deferred tax liabilities)($63.4 million) and goodwill ($54.1 million). The final determination of thesefair values will be completed as soon as possible but no later than one yearfrom the acquisition date. Goodwill arising of $54.1 million, which is notdeductible for tax purposes, has been assigned to the HGT operating segment. In the six months to June 30, 2013 the Group expensed costs of $3.7 million(2012: $nil) relating to the Lotus acquisition, which have been recordedwithin integration and acquisition costs in the Group's consolidated incomestatement. Supplemental disclosure of pro forma information The unaudited pro forma financial information to present the combined resultsof the operations of Shire, SARcode Premacure and Lotus are not provided asthe collective impacts of these acquisitions were not material to the Group'sresults of operations for any period presented. 3. Reorganization costs Turnhout, Belgium site closure On January 23, 2013 Shire announced that it had decided to proceed with acollective dismissal and business closure at its site in Turnhout, Belgium.This decision follows the conclusion of an information and consultationprocess. Shire will continue to sell RESOLOR in Europe and the supply ofRESOLOR for patients in Europe who rely on the medicine will not be affected.In the three and six months to June 30, 2013 the Group incurred reorganizationcosts totaling $1.7 million and $19.2 million, respectively relating toemployee involuntary termination benefits and other re-organization costs (ofwhich $0.4 million is accrued at June 30, 2013). The closure of the Turnhoutsite is expected to be completed by the end of 2013. "One Shire" business re-alignment On May 2, 2013 the Group announced that there would be a re-alignment of thebusiness to integrate the three divisions into a simplified "One Shire"organization in order to drive future growth and innovation. In the three andsix months to June 30, 2013, the Group incurred reorganization costs totaling$24.7 million, relating to contract termination and other re-organizationcosts (of which $0.4 million is accrued at June 30, 2013). This re-alignmentis ongoing and the Group is continuing to evaluate the total costs expected tobe incurred and the timeframe. 4. Accounts receivable, net Accounts receivable at June 30, 2013 of $915.2 million (December 31, 2012:$824.2 million), are stated net of a provision for discounts and doubtfulaccounts of $41.8 million (December 31, 2012: $41.7 million). Provision for discounts and doubtful accounts: 2013 2012 $'M $'M _____________ _____________As at January 1, 41.7 31.1Provision charged to operations 150.8 135.0Provision utilization (150.7) (129.5) _____________ _____________As at June 30, 41.8 36.6 _____________ _____________ At June 30, 2013 accounts receivable included $34.8 million (December 31,2012: $38.5 million) related to royalty income. 5. Inventories Inventories are stated at the lower of cost or market and comprise: June 30, December 31, 2013 2012 $'M $'M ____________ ____________Finished goods 155.0 124.4Work-in-progress 245.3 220.6Raw materials 91.9 91.9 ____________ ____________ 492.2 436.9 ____________ ____________6. Prepaid expenses and other current assets June 30, December 31, 2013 2012 $'M $'M ______________ ____________Prepaid expenses 49.2 31.7Income tax receivable 175.3 130.6Value added taxes receivable 20.4 20.9Other current assets 44.2 38.6 ______________ ______________ 289.1 221.8 ______________ ______________7. Goodwill June 30, December 31, 2013 2012 $'M $'M ____________ ____________Goodwill arising on businesses acquired 611.6 644.5 ____________ ____________ In the six months to June 30, 2013 the Group completed the acquisitions ofSARcode, Premacure and Lotus, which resulted in goodwill with a value of $86.6million, $29.6 million and $54.1 million, respectively (see Note 2). On anInterim basis the goodwill of SARcode has been assigned to the SP operatingsegment and the goodwill of Premacure and Lotus has been assigned to the HGToperating segment. At June 30, 2013 goodwill of $376.8 million (December 31, 2012: $291.1million) is held in the SP segment, $234.8 million (December 31, 2012: $154.5million) in the HGT segment and $nil (December 31, 2012: $198.9 million) isheld in the RM segment. The Group is continuing to assess the impact of theongoing "One Shire" realignment on its operating and reportable segments (seenote 18 for details) and the related impact on the allocation of goodwill. 2013 2012 $'M $'M ____________ ____________As at January 1, 644.5 592.6Acquisitions 170.3 48.1Goodwill impairment charge (198.9) -Foreign currency translation (4.3) (4.7) ____________ ____________As at June 30, 611.6 636.0 ____________ ____________ Goodwill is tested for impairment at least annually as at October 1each year. This assessment is also performed whenever there is a change incircumstances that indicates the carrying value of these assets may beimpaired. As at October 1, 2012 the Group determined that the fair value ofall reporting units exceeded their book value, indicating that the goodwillallocated to each reporting unit was not impaired. In the first quarter of 2013 the Group identified circumstanceswhich indicated that the carrying value of goodwill in the RM reporting unitmay not be recoverable, which triggered an impairment test in advance of theannual testing date. These circumstances included the results of an independent marketresearch study of the DERMAGRAFT sales potential, commissioned by the Group,which was finalized late in the first quarter of 2013. In addition, while theGroup still expects DERMAGRAFT to return to growth over coming quarters, therecently completed restructuring of the RM sales and marketing organizationand the implementation of a new commercial model had a more pronounced impactthan previously expected. As a result of these and other factors forecastfuture sales are now lower than at the time of acquisition. The results of the Group's March 31, 2013 impairment test showedthat the carrying amount of the RM reporting unit exceeded its fair value andthe implied value of the goodwill was $nil. As a result the Group recorded animpairment charge of $198.9 million related to the goodwill allocated to theRM reporting unit. The RM goodwill impairment charge is not deductible for taxpurposes. This is the primary reason that the effective rate of tax in thefirst half of 2013 (29%) is higher than the same period in 2012 (18%).Accumulated goodwill impairment as at June 30, 2013 was $198.9 million(December 31, 2012: $nil). Key assumptions used to determine the fair value of the RMreporting unit included expected cash flows for the period from March 31, 2013to December 31, 2023 and the associated discount rate of 15.1%, which wasderived from management's best estimate of the after-tax weighted average costof capital for the RM reporting unit. The Group determined the estimated fair value of the RM reporting unit usingdiscounted cash flow analyses. Discounted cash flow analyses are dependentupon a number of quantitative and qualitative factors including estimates offorecasted revenue, profitability, earnings before interest, taxes,depreciation and amortization, and terminal values. The discount rates appliedin the discounted cash flow analyses also have an impact on the estimates offair value, as use of a higher rate will result in a lower estimate of fairvalue. 8. Other intangible assets, net June 30, December 31, 2013 2012 $'M $'M ________________ ________________Amortized intangible assets Intellectual property rights acquired for currently marketed products 2,446.6 2,462.0 Acquired product technology 710.0 710.0 Other intangible assets 44.5 44.5 ________________ ________________ 3,201.1 3,216.5Unamortized intangible assets Intellectual property rights acquired for IPR&D 945.8 231.0 ________________ ________________ 4,146.9 3,447.5 Less: Accumulated amortization (1,148.8) (1,059.4) ________________ ________________ 2,998.1 2,388.1 ________________ ________________ As at June 30, 2013 the net book value of intangible assets allocated to theSP segment was $1,582.4 million (December 31, 2012: $1,238.0 million), to theHGT segment was $760.3 million (December 31, 2012: $474.6 million) and to theRM segment was $655.4 million (December 31, 2012: $675.5 million). The change in the net book value of other intangible assets for the six monthsto June 30, 2013 and 2012 is shown in the table below: Other intangible assets 2013 2012 $'M $'M ________________ ________________As at January 1, 2,388.1 2,493.0Acquisitions 732.8 272.5Amortization charged (91.7) (97.3)Impairment charges (19.9) (27.0)Foreign currency translation (11.2) (15.6) ________________ ________________As at June 30, 2,998.1 2,625.6 ________________ ________________ In the six months to June 30, 2013 the Group acquired intangible assetstotaling $732.8 million, relating to intangible assets acquired with SARcode,Premacure and Lotus (see Note 2 for further details). In the second quarter of 2013 the Group reviewed certain IPR&D intangibleassets acquired through Movetis N.V. ("Movetis") for impairment and recognizedan impairment charge of $19.9 million (2012: $27.0 million) recorded withinR&D in the consolidated income statement, to write-down these IPR&D assets totheir fair value. These impairment charges have been recorded in the SPoperating segment. The fair values of these assets were determined using theincome approach, which used significant unobservable (Level 3) inputs (seeNote 16 for further details). Management estimates that the annual amortization charge in respect ofintangible assets held at June 30, 2013 will be approximately $170 million foreach of the five years to June 30, 2018. Estimated amortization expense can beaffected by various factors including future acquisitions, disposals ofproduct rights, regulatory approval and subsequent amortization of acquiredIPR&D projects, foreign exchange movements and the technological advancementand regulatory approval of competitor products. 9. Accounts payable and accrued expenses June 30, December 31, 2013 2012 $'M $'M ________________ ________________Trade accounts payable and accrued purchases 201.7 208.1Accrued rebates - Medicaid 454.6 455.6Accrued rebates - Managed care 226.2 184.9Sales return reserve 93.1 90.5Accrued bonuses 70.5 109.0Accrued employee compensation and benefits payable 74.4 64.5R&D accruals 70.9 73.5Provisions for litigation losses and other claims 73.5 118.2Other accrued expenses 191.8 197.2 ________________ ________________ 1,456.7 1,501.5 ________________ ________________10. Convertible Bonds Shire 2.75% Convertible Bonds due 2014 On May 9, 2007 Shire issued $1,100 million in principal amount of 2.75%convertible bonds due in 2014 and convertible into fully paid ordinary sharesof Shire plc (the "Bonds"). The Bonds were issued at 100% of their principalamount, and unless previously purchased and cancelled, redeemed or converted,will be redeemed on May 9, 2014 (the "Final Maturity Date") at their principalamount. The Bonds are repayable in US dollars, but also contain provisions entitlingthe Group to settle redemption amounts in Pounds sterling or in the case ofFinal Maturity Date by delivery of the underlying ordinary shares and, ifnecessary, a cash top-up amount. As the Bonds will be redeemed within twelvemonths of the balance sheet date, the Bonds have been presented as a currentliability at June 30, 2013. 11. Other current liabilities June 30, December 31, 2013 2012 $'M $'M _____________ _____________Income taxes payable 24.9 78.4Value added taxes 18.5 23.6Contingent consideration payable 86.4 16.0Other current liabilities 29.0 26.1 _____________ _____________ 158.8 144.1 _____________ _____________12. Other non-current liabilities June 30, December 31, 2013 2012 $'M $'M ____________ ____________Income taxes payable 63.3 58.9Deferred revenue 10.7 11.4Deferred rent 11.2 11.9Insurance provisions 12.4 12.3Contingent consideration payable 499.0 120.4Other non-current liabilities 27.9 26.7 ____________ ____________ 624.5 241.6 ____________ ____________13. Commitments and contingencies (a) Leases Future minimum lease payments under operating leases at June 30, 2013 arepresented below: Operating leases $'M ____________2013 21.62014 40.32015 31.22016 23.02017 17.32018 11.8Thereafter 82.8 ____________ 228.0 ____________The Group leases land, facilities, motor vehicles and certain equipment underoperating leases expiring through 2032. Lease and rental expense amounted to$25.4 million and $21.5 million for the six months to June 30, 2013 and 2012respectively, which is predominately included in SG&A expenses in the Group'sconsolidated income statement. (b) Letters of credit and guarantees At June 30, 2013 the Group had irrevocable standby letters of credit andguarantees with various banks and insurance companies totaling $48.7 million,providing security for the Group's performance of various obligations. Theseobligations are primarily in respect of the recoverability of insuranceclaims, lease obligations and supply commitments. (c) Collaborative arrangements Details of significant updates in collaborative arrangements are includedbelow: In-licensing arrangements Collaboration with Acceleron Pharma Inc. ("Acceleron") for activin receptortype IIB class of molecules In April 2013, following the results of toxicology studies, Shire discontinueddevelopment of HGT4510 and returned Shire's rights in the asset to Acceleron. Out-licensing arrangements Shire has entered into various collaborative arrangements under which theGroup has out-licensed certain product or intellectual property rights forconsideration such as up-front payments, development milestones, salesmilestones and/or royalty payments. In some of these arrangements Shire andthe licensee are both actively involved in the development andcommercialization of the licensed product and have exposure to risks andrewards dependent on its commercial success. Under the terms of thesearrangements, the Group may receive development milestone payments up to anaggregate amount of $39.0 million and sales milestones up to an aggregateamount of $71.5 million. The receipt of these substantive milestones isuncertain and contingent on the achievement of certain development milestonesor the achievement of a specified level of annual net sales by the licensee.In the six months to June 30, 2013 Shire received up-front and milestonepayments totaling $3.0 million (2012: $6.0 million). In the six months to June30, 2013 Shire recognized up-front and milestone income of $4.0 million (2012:$6.0 million) in other revenues and $26.3 million (2012: $38.0 million) inproduct sales for shipment of product to the relevant licensee. (d) Commitments (i) Clinical testing At June 30, 2013 the Group had committed to pay approximately $398 million(December 31, 2012: $425 million) to contract vendors for administering andexecuting clinical trials. The timing of these payments is dependent uponactual services performed by the organizations as determined by patientenrollment levels and related activities. (ii) Contract manufacturing At June 30, 2013 the Group had committed to pay approximately $80 million(December 31, 2012: $125 million) in respect of contract manufacturing. TheGroup expects to pay all of these commitments in 2013. (iii) Other purchasing commitments At June 30, 2013 the Group had committed to pay approximately $144 million(December 31, 2012: $145 million) for future purchases of goods and services,predominantly relating to active pharmaceutical ingredients sourcing. TheGroup expects to pay $134 million of these commitments in 2013. (iv) Investment commitments At June 30, 2013 the Group had outstanding commitments to subscribe forinterests in companies and partnerships for amounts totaling $17 million(December 31, 2012: $15 million) which may all be payable in 2013, dependingon the timing of capital calls. (v) Capital commitments At June 30, 2013 the Group had committed to spend $82 million (December 31,2012: $97 million) on capital projects. (e) Legal and other proceedings The Group expenses legal costs as they are incurred. The Group recognizes loss contingency provisions for probable losses whenmanagement is able to reasonably estimate the loss. When the estimated losslies within a range, the Group records a loss contingency provision based onits best estimate of the probable loss. If no particular amount within thatrange is a better estimate than any other amount, the minimum amount isrecorded. Estimates of losses may be developed substantially before theultimate loss is known, and are therefore refined each accounting period asadditional information becomes known. In instances where the Group is unableto develop a reasonable estimate of loss, no loss contingency provision isrecorded at that time. As information becomes known a loss contingencyprovision is recorded when a reasonable estimate can be made. The estimatesare reviewed quarterly and the estimates are changed when expectations arerevised. An outcome that deviates from the Group's estimate may result in anadditional expense or release in a future accounting period. At June 30, 2013provisions for litigation losses, insurance claims and other disputes totaled$85.9 million (December 31, 2012: $130.5 million). The Group's principal pending legal and other proceedings are disclosed below.The outcomes of these proceedings are not always predictable and can beaffected by various factors. For those legal and other proceedings for whichit is considered at least reasonably possible that a loss has been incurred,the Group discloses the possible loss or range of possible loss in excess ofthe recorded loss contingency provision, if any, where such excess is bothmaterial and estimable. VYVANSE In May and June 2011, Shire was notified that six separate Abbreviated NewDrug Applications ("ANDAs") were submitted under the Hatch-Waxman Act seekingpermission to market generic versions of all approved strengths of VYVANSE.The notices were from Sandoz, Inc. ("Sandoz"); Amneal Pharmaceuticals LLC("Amneal"); Watson Laboratories, Inc.; Roxane Laboratories, Inc. ("Roxane");Mylan Pharmaceuticals, Inc.; and Actavis Elizabeth LLC and Actavis Inc.(collectively, "Actavis"). Within the requisite 45 day period, Shire filedlawsuits for infringement of certain of Shire's VYVANSE patents in the USDistrict Court for the District of New Jersey against each of Sandoz, Roxane,Amneal and Actavis; in the US District Court for the Central District ofCalifornia against Watson Laboratories, Inc.; and in the US District Court forthe Eastern District of New York against Mylan Pharmaceuticals, Inc. and MylanInc. (collectively "Mylan"). On December 9, 2011, the District Court of NewJersey consolidated the Sandoz, Roxane, Amneal and Actavis cases. The filingof the lawsuits triggered a stay of approval of all six ANDAs for up to 30months from the expiration of the new chemical entity exclusivity, which willexpire on August 23, 2014. In December 2011 and February 2012, Shire receivedadditional notifications that Mylan had filed further certificationschallenging other VYVANSE patents listed in the Orange Book. Within therequisite 45 day period, Shire filed a new lawsuit against Mylan, JohnsonMatthey Pharmaceutical Materials and Johnson Matthey Inc. in New Jersey. InMay 2012, the Mylan case that was filed in the Eastern District of New Yorkwas transferred and consolidated with the Mylan, Sandoz, Roxane, Amneal andActavis cases in New Jersey. In December 2012, the parties completed a Markmanbriefing but no ruling has been rendered. A Markman hearing took place onAugust 5, 2013. No trial dates have been set. In February 2013, Shire withdrewits lawsuit against Watson following Watson's withdrawal of its ANDA. INTUNIV Between March 2010 and March 2011, Shire was notified that seven separateANDAs had been submitted to the FDA under the Hatch-Waxman Act seekingpermission to market generic versions of all approved strengths of INTUNIV.The ANDA filers were Actavis Inc., Teva Pharmaceuticals USA, Inc., Anchen,Inc., Watson Pharmaceuticals, Inc., Impax Laboratories, Inc., MylanPharmaceuticals, Inc., Sandoz, Inc., and certain of their respectiveaffiliates. Shire filed lawsuits against each of these ANDA filers. All of thelawsuits have now been settled. Under the terms of the Actavis settlement,Actavis has a license to make and market Actavis' generic versions of INTUNIVin the United States on December 1, 2014. Such sales will require the paymentof a royalty of 25% of gross profits to Shire during the 180 day period ofActavis' exclusivity. All other parties with whom Shire has settled will beable to enter the market with their respective ANDA-approved products afterActavis' 180 day exclusivity period has expired. Each of the settlementsincluded a consent judgment confirming that the proposed ANDA productsinfringe the patents-in-suit, U.S. Patents 6,287,599 and 6,811,794, and thatthose patents are valid and enforceable with respect to their respectiveproposed ANDA products. U.S. Patent 5,854,290, which was originally assertedin some of the litigations, has been dedicated to the public. FOSRENOL Between February 2009 and December 2010 Shire was notified that four separateANDAs had been submitted to the FDA under the Hatch-Waxman Act seekingpermission to market generic versions of all approved strengths of FOSRENOL.The ANDA filers were Barr Laboratories, Inc.; Mylan, Inc.; Natco PharmaLimited and Alkem Laboratories Ltd., and certain of their respectiveaffiliates. Shire filed lawsuits against each of these ANDA filers. In April2011, Shire and Barr reached a settlement and the lawsuit against Barr wasdismissed. The settlement provides Barr with a license to market its owngeneric version of FOSRENOL upon receiving FDA approval in the US on theearlier of the date of entry of another company's generic version of FOSRENOLto the US market, or October 1, 2021. Shire's lawsuits against Mylan, Alkemand Natco have each been dismissed, and consequently, each of Mylan, Alkem andNatco may enter the US market upon FDA approval of their respective ANDAproducts. LIALDA In May 2010 Shire was notified that Zydus Pharmaceuticals USA, Inc. ("Zydus")had submitted an ANDA under the Hatch-Waxman Act seeking permission to marketa generic version of LIALDA. Within the requisite 45 day period, Shire filed alawsuit in the US District Court for the District of Delaware against Zydusand Cadila Healthcare Limited, doing business as Zydus Cadila. As of February22, 2013, the case has been administratively closed. No further activity willtake place until after one of the parties files a motion to reopen the case. In February 2012, Shire was notified that Osmotica Pharmaceutical Corporation("Osmotica") had submitted an ANDA under the Hatch-Waxman Act seekingpermission to market a generic version of LIALDA. Within the requisite 45 dayperiod, Shire filed a lawsuit in the US District Court for the NorthernDistrict of Georgia against Osmotica. The filing of the lawsuit triggered astay of approval of the ANDA for up to 30 months. The court has appointed aspecial master to assist with a Markman hearing and to preside over anydiscovery disputes. A Markman hearing date is scheduled to take place onAugust 22, 2013. In March 2012, Shire was notified that Watson Laboratories Inc.-Florida hadsubmitted an ANDA under the Hatch-Waxman Act seeking permission to market ageneric version of LIALDA. Within the requisite 45 day period, Shire filed alawsuit in the US District Court for the Southern District of Florida againstWatson Laboratories Inc.-Florida and Watson Pharmaceuticals, Inc. The filingof the lawsuit triggered a stay of approval of the ANDA for up to 30 months.In August 2012, Shire filed an amended complaint adding Watson Pharma, Inc.and Watson Laboratories, Inc. as defendants. A Markman hearing was held onDecember 20, 2012 and a written Markman decision was given by the court onJanuary 17, 2013. A trial took place in April, 2013 and on May 9, 2013 thetrial court issued a decision finding that the proposed generic productinfringes the patent-in-suit and that the patent is not invalid. Watson hasappealed the trial court's ruling to the Court of Appeals of the FederalCircuit but no date for the hearing has been set. In April 2012, Shire was notified that Mylan Pharmaceuticals, Inc. ("Mylan")had submitted an ANDA under the Hatch-Waxman Act seeking permission to marketa generic version of LIALDA. Within the requisite 45 day period, Shire filed alawsuit in the US District Court for the Middle District of Florida againstMylan. The filing of the lawsuit triggered a stay of approval of the ANDA forup to 30 months. No date for a Markman hearing has been set. A trial isscheduled to begin on June 2, 2014. ADDERALL XR On November 1, 2010 Impax Laboratories, Inc. ("Impax") filed suit againstShire in the US District Court for the Southern District of New York claimingthat Shire was in breach of its supply contract for the authorized genericversion of ADDERALL XR. On February 7, 2013 Shire and Impax settled thisdispute and agreed to discontinue all court and related proceedings. Under theterms of the settlement Shire made a one-time cash payment to Impax of $48million in the first quarter of 2013. Also as part of the settlement, theparties have entered into an amended supply agreement which will govern thesupply of authorized generic ADDERALL XR from Shire to Impax until the end ofthe supply term on September 30, 2014. In February 2011, Shire was notified that Watson Laboratories, Inc.-Floridahad submitted an ANDA under the Hatch-Waxman Act seeking permission to marketa generic version of all approved strengths of ADDERALL XR. Shire filed alawsuit in the U.S. District Court for the Southern District of New Yorkagainst Watson Pharmaceuticals, Inc. and certain of its affiliates forinfringement of certain of Shire's ADDERALL XR patents. Par Pharmaceutical,Inc. (the successor in interest to Watson's ANDA for ADDERALL XR) haswithdrawn its ANDA, and the litigation was dismissed on January 23, 2013 byagreement between Shire, Watson and Par Pharmaceutical, Inc.. In February 2013, Shire was notified that Neos Therapeutics, Inc. hadsubmitted a New Drug Application under section 505(b)(2) of the Hatch WaxmanAct ("505(b)(2) Application"). The 505(b)(2) Application was submitted with aparagraph IV certification for U.S. Reissued Patent Nos. RE41,148 and 42,096listed in the Orange Book. Within the requisite 45 day period, Shire filed alawsuit in the Northern District of Texas against Neos Therapeutics, Inc. forinfringement of those patents. The filing of the lawsuit triggered a stay offinal approval of the 505(b)(2) Application for 30 months. No trial date hasbeen set. Subpoena related to ADDERALL XR, DAYTRANA and VYVANSE On September 23, 2009 the Group received a civil subpoena from the USDepartment of Health and Human Services Office of Inspector General incoordination with the US Attorney for the Eastern District of Pennsylvaniaseeking production of documents related to the sales and marketing of ADDERALLXR, DAYTRANA and VYVANSE. The investigation covered whether Shire engaged inoff-label promotion and other conduct that may implicate the civil FalseClaims Act. On February 1, 2013 the Group announced it had reached an agreement inprinciple to resolve this matter. The agreement also addresses sales andmarketing practices relating to LIALDA and PENTASA pursuant to a subsequentvoluntary disclosure made by the Group. Shire cooperated with the USGovernment throughout the process that led to this agreement in principle. The Group has recorded a $57.5 million charge comprised of the agreement inprinciple amount, interest and costs, which has been charged to SG&A in thefourth quarter of 2012. The agreement in principle is subject to change untilthis matter is finally resolved. Discussions between the Group and the USGovernment are ongoing to establish a final resolution to the investigation. Investigation related to DERMAGRAFT Shire understands that the Department of Justice, including the US Attorney'sOffice for the Middle District of Florida, Tampa Division and the USAttorney's Office for Washington, DC, is conducting civil and criminalinvestigations into the sales and marketing practices of ABH relating toDERMAGRAFT. Shire is cooperating fully with these investigations. Shire is notin a position at this time to predict the scope, duration or outcome of theseinvestigations. Civil Investigative Demand for ADDERALL XR, ADDERALL XR Authorized Genericsand VYVANSE On April 5, 2012 Shire received a Civil Investigative Demand ("CID") from theUnited States Federal Trade Commission ("FTC") requesting that Shire provideit with certain information regarding the supply and reported shortages ofADDERALL XR and its authorized generics and the marketing and sale of ADDERALLXR, its authorized generics and VYVANSE. Shire believes the CID was triggeredby reports of product shortages of ADDERALL XR and the authorized genericproducts in 2011. Shire is cooperating fully with the FTC. At this time, Shireis unable to predict the outcome or duration of this investigation. 14. Accumulated Other Comprehensive Income The changes in accumulated other comprehensive income, net of their relatedtax effects, in the six months to June 30, 2013 are included below: Unrealized Foreign holding Accumulated currency gain/(loss) on other translation available-for- comprehensive adjustment sale securities income $M $M $M As at January 1, 2013 85.1 1.8 86.9Current period change: Other Comprehensive income before reclassification (34.5) (2.1) (36.6) Gain recognized in the income statement (within Other (expense)/income, net) on disposal of available-for-sale securities - 1.9 1.9Net current period other comprehensive income (34.5) (0.2) (34.7) As at June 30, 2013 50.6 1.6 52.2 15. Financial instruments Treasury policies and organization The Group's principal treasury operations are coordinated by itscorporate treasury function. All treasury operations are conducted within aframework of policies and procedures approved annually by the Board. As amatter of policy, the Group does not undertake speculative transactions thatwould increase its currency or interest rate exposure. Interest rate risk The Group is exposed to interest rate risk on restricted cash, cash and cashequivalents and on foreign exchange contracts on which interest is at floatingrates. This exposure is primarily related to US dollar, Pounds sterling, Euroand Canadian dollar interest rates. As the Group maintains all of its cash,liquid investments and foreign exchange contracts on a short term basis forliquidity purposes, this risk is not actively managed. In the six months toJune 30, 2013 the average interest rate received on cash and liquidinvestments was less than 1% per annum. The largest proportion of these cashand liquid investments was in US dollar money market and liquidity funds. The Group incurs interest at a fixed rate of 2.75% on its $1,100 million inprincipal amount convertible bonds due 2014. No derivative instruments were entered into during the six monthsto June 30, 2013 to manage interest rate exposure. The Group continues toreview its interest rate risk and the policies in place to manage the risk. Credit risk Financial instruments that potentially expose Shire toconcentrations of credit risk consist primarily of short-term cashinvestments, derivative contracts and trade accounts receivable (from productsales and from third parties from which the Group receives royalties). Cash isinvested in short-term money market instruments, including money market andliquidity funds and bank term deposits. The money market and liquidity fundsin which Shire invests are all triple A rated by both Standard and Poor's andby Moody's credit rating agencies. The Group is exposed to the credit risk of the counterparties withwhich it enters into derivative instruments. The Group limits this exposurethrough a system of internal credit limits which vary according to ratingsassigned to the counterparties by the major rating agencies. The internalcredit limits are approved by the Board and exposure against these limits ismonitored by the corporate treasury function. The counterparties to thesederivatives contracts are major international financial institutions. The Group's revenues from product sales in the US are mainly governed byagreements with major pharmaceutical wholesalers and relationships with otherpharmaceutical distributors and retail pharmacy chains. For the year toDecember 31, 2012 there were three customers in the US that accounted for 50%of the Group's product sales. However, such customers typically havesignificant cash resources and as such the risk from concentration of creditis considered acceptable. The Group has taken positive steps to manage anycredit risk associated with these transactions and operates clearly definedcredit evaluation procedures. However, an inability of one or more of thesewholesalers to honor their debts to the Group could have an adverse effect onthe Group's financial condition and results of operations. A substantial portion of the Group's accounts receivable in countries outsideof the United States is derived from product sales to government-owned orgovernment-supported healthcare providers. The Group's recovery of theseaccounts receivable is therefore dependent upon the financial stability andcreditworthiness of the relevant governments. In recent years thecreditworthiness and general economic condition of a number of Eurozonecountries (including Greece, Ireland, Italy, Portugal and Spain (the "RelevantCountries")) has deteriorated. As a result, in some of these countries theGroup is experiencing delays in the remittance of receivables due fromgovernment-owned or government-supported healthcare providers. The Groupcontinued to receive remittances in relation to government-owned orgovernment-supported healthcare providers in all the Relevant Countries in thesix months to June 30, 2013, including receipts of $37.9 million and $48.6million in respect of Spanish and Italian receivables, respectively. To date the Group has not incurred significant losses on accounts receivablein the Relevant Countries, and continues to consider that such accountsreceivable are recoverable. The Group will continue to evaluate all itsaccounts receivable for potential collection risks and has made provision foramounts where collection is considered to be doubtful. If the financialcondition of the Relevant Countries or other Eurozone countries suffersignificant deterioration, such that their ability to make payments becomesuncertain, or if one or more Eurozone member countries withdraws from theEuro, additional allowances for doubtful accounts may be required, and lossesmay be incurred, in future periods. Any such loss could have an adverse effecton the Group's financial condition and results of operations. Foreign exchange risk The Group trades in numerous countries and as a consequence hastransactional and translational foreign exchange exposures. Transactional exposure arises where transactions occur incurrencies different to the functional currency of the relevant subsidiary.The main trading currencies of the Group are the US dollar, Pounds Sterling,Swiss Franc and the Euro. It is the Group's policy that these exposures areminimized to the extent practicable by denominating transactions in thesubsidiary's functional currency. Where significant exposures remain, the Group uses foreign exchangecontracts (being spot, forward and swap contracts) to manage the exposure forbalance sheet assets and liabilities that are denominated in currenciesdifferent to the functional currency of the relevant subsidiary. These assetsand liabilities relate predominantly to intercompany financing and specificexternal receivables. The foreign exchange contracts have not been designatedas hedging instruments. Cash flows from derivative instruments are presentedwithin net cash provided by operating activities in the consolidated cash flowstatement, unless the derivative instruments are economically hedging specificinvesting or financing activities. Translational foreign exchange exposure arises on the translation into USdollars of the financial statements of non-US dollar functional subsidiaries. At June 30, 2013 the Group had 25 swap and forward foreign exchangecontracts outstanding to manage currency risk. The swaps and forward contractsmature within 90 days. The Group did not have credit risk related contingentfeatures or collateral linked to the derivatives. The Group has master nettingagreements with a number of counterparties to these foreign exchange contractsand on the occurrence of specified events, the Group has the ability toterminate contracts and settle them with a net payment by one party to theother. The Group has elected to present derivative assets and derivativeliabilities on a gross basis in the consolidated balance sheet. As at June 30,2013 the potential effect of rights of set off associated with the foreignexchange contracts would be an offset to both assets and liabilities of $0.7million, resulting in net derivative assets and derivative liabilities of $2.3million and $2.0 million, respectively. Further details are included below: Fair value Fair value June 30, December 31, 2013 2012 $'M $'M _____________ _____________Assets Prepaid expenses and other current assets 3.0 1.3Liabilities Other current liabilities 2.7 3.0 _____________ _____________ Net (losses)/ gains (both realized and unrealized) arising on foreign exchangecontracts have been classified in the consolidated statements of income asfollows: Location of net (loss)/gain Amount of net (loss)/gain recognized in income recognized in income ______________________ ____________ ____________In the six months to June 30, June 30, 2013 2012 $'M $'M _____________ _____________Foreign exchange contracts Other income, net (3.8) 6.9 _____________ _____________These net foreign exchange (losses)/gains are offset within Other income, netby net foreign exchange gains/(losses) arising on the balance sheet items thatthese contracts were put in place to manage. 16. Fair value measurement Assets and liabilities that are measured at fair value on a recurring basis As at June 30, 2013 and December 31, 2012 the following financial assets andliabilities are measured at fair value on a recurring basis using quotedprices in active markets for identical assets (Level 1); significant otherobservable inputs (Level 2); and significant unobservable inputs (Level 3). Carrying Fair value value Total Level 1 Level 2 Level 3At June 30, 2013 $'M $'M $'M $'M $'M ____________ ____________ ___________ ___________ ___________Financial assets:Available-for-salesecurities(1) 12.3 12.3 12.3 - -Contingentconsiderationreceivable (2) 38.6 38.6 - - 38.6Foreign exchangecontracts 3.0 3.0 - 3.0 - Financial liabilities:Foreign exchangecontracts 2.7 2.7 - 2.7 -Contingentconsiderationpayable(3) 585.4 585.4 - - 585.4 ____________ ____________ ___________ ___________ ___________ Total Level 1 Level 2 Level 3At December 31, 2012 $'M $'M $'M $'M $'M ____________ ____________ ___________ ___________ ___________Financial assets:Available-for-salesecurities(1) 14.2 14.2 14.2 - -Contingentconsiderationreceivable (2) 38.3 38.3 - - 38.3Foreign exchangecontracts 1.3 1.3 - 1.3 - Financial liabilities:Foreign exchangecontracts 3.0 3.0 - 3.0 -Contingentconsiderationpayable(3) 136.4 136.4 - - 136.4 ____________ ____________ ___________ ___________ ___________ (1) Available-for-sale securities are included within Investments in theconsolidated balance sheet. (2) Contingent consideration receivable is included within Prepaid expensesand other current assets and Other non-current assets in the consolidatedbalance sheet. (3) Contingent consideration payable is included within Other currentliabilities and Other non-current liabilities in the consolidated balancesheet. Certain estimates and judgments were required to develop the fair valueamounts. The fair value amounts shown above are not necessarily indicative ofthe amounts that the Group would realize upon disposition, nor do theyindicate the Group's intent or ability to dispose of the financial instrument. The following methods and assumptions were used to estimate the fair value ofeach material class of financial instrument: 1. Available-for-sale securities - the fair values of available-for-salesecurities are estimated based on quoted market prices for those investments. 2. Contingent consideration receivable - the fair value of the contingentconsideration receivable has been estimated using the income approach (using aprobability weighted discounted cash flow method). 3. Foreign exchange contracts - the fair values of the swap and forwardforeign exchange contracts have been determined using an income approach basedon current market expectations about the future cash flows. 4. Contingent consideration payable - the fair value of the contingentconsideration payable has been estimated using the income approach (using aprobability weighted discounted cash flow method). Assets and Liabilities Measured at Fair Value on a Recurring Basis UsingSignificant Unobservable Inputs (Level 3) The change in the fair value of the Group's contingent considerationreceivable and payables, which are measured at fair value on a recurring basisusing significant unobservable inputs (Level 3), are as follows: Contingent consideration receivable 2013 2012 $'M $'M ____________ ____________ Balance at January 1, 38.3 37.8Gain recognized in the income statement (within Gain onsale of productrights) due to change in fair value during the period 11.0 10.8Reclassification of amounts to Other receivables withinOther current assets (9.7) (10.0)Amounts recorded to other comprehensive income (withinforeign currencytranslation adjustments) (1.0) (0.7) Balance at June 30, 38.6 37.9 Contingent consideration payable 2013 2012 $'M $'M ____________ ____________ Balance at January 1, 136.4 -Initial recognition of contingent consideration payable 451.4 127.8Loss recognized in the income statement (within Integrationand acquisitioncosts) due to change in fair value during the period 13.7 2.1Reclassification of amounts to Other current liabilities (8.4) (2.7)Change in fair value during the period with correspondingadjustment to theassociated intangible asset (7.7) - Balance at June 30, 585.4 127.2 Quantitative Information about Assets and Liabilities Measured at Fair Valueon a Recurring Basis Using Significant Unobservable Inputs (Level 3) Quantitative information about the Group's recurring Level 3 fair valuemeasurements is included below: Financial assets: Fair Value at the Measurement Date At June 30, 2013 Fair value Valuation Significant Range Technique unobservable Inputs $'M ____________ ___________ ___________ ___________Contingent consideration 38.6 Income - Probability - 10 to 40%receivable ("CCR") approach weightings (probability applied to weighted different discounted sales - $10 million cash flow) scenarios to $171 million - Future forecast royalties receivable at - 6.0% relevant contractual royalty rates - Assumed market participant discount rate ____________ ____________ ____________ ____________ Financial liabilities: Fair Value at the Measurement Date At June 30, 2013 Fair value Valuation Significant Range Technique unobservable Inputs $'M ____________ ___________ ___________ ___________Contingent consideration 585.4 Income - Cumulative - 18 to 57%payable approach probability (Weighted (probability of milestones average) weighted being discounted achieved - 2.1 to 8.8% cash flow) (Weighted - Assumed average) market participant discount rate - 2014 to 2024 - Periods in which milestones are expected - $1.7 to to be $7.6 million achieved - Forecast quarterly royalties payable on net sales of relevant products ____________ ____________ ____________ ____________ The Group re-measures the CCR (relating to contingent consideration due to theGroup following divestment of one of the Group's products) at fair value ateach balance sheet date, with the fair value measurement based on forecastcash flows, over a number of scenarios which vary depending on the expectedperformance outcome of the product following divestment. The forecast cashflows under each of these differing outcomes have been included in probabilityweighted estimates used by the Group in determining the fair value of the CCR. Contingent consideration payable represents future milestones the Group may berequired to pay in conjunction with various business combinations and futureroyalties payable as a result of certain business combinations and licenses.The amount ultimately payable by Shire in relation to business combinations isdependent upon the achievement of specified future milestones, such as theachievement of certain future development, regulatory and sales milestones.The Group assesses the probability, and estimated timing, of these milestonesbeing achieved and re-measures the related contingent consideration to fairvalue each balance sheet date. The amount of contingent consideration whichmay ultimately be payable by Shire in relation to future royalties isdependent upon future net sales of the relevant products over the life of theroyalty term. The Group assesses the present value of forecast future netsales of the relevant products and re-measures the related contingentconsideration to fair value each balance sheet date. The fair value of the Group's contingent consideration receivable and payablecould significantly increase or decrease due to changes in certain assumptionswhich underpin the fair value measurements. Each set of assumptions andmilestones are specific to the individual contingent consideration receivableor payable. The assumptions include, among other things, the probability andexpected timing of certain milestones being achieved, the forecast future netsales of the relevant products and related future royalties payable, theprobability weightings applied to different sales scenarios of one of theGroup's divested products and forecast future royalties receivable underscenarios developed by the Group, and the discount rates used to determine thepresent value of contingent future cash flows. The Group regularly reviewsthese assumptions, and makes adjustments to the fair value measurements asrequired by facts and circumstances. Assets Measured At Fair Value on a Non-Recurring Basis in the period usingSignificant Unobservable Inputs (Level 3) In the second quarter of 2013 the Group reviewed certain IPR&D intangibleassets acquired through Movetis for impairment and recognized an impairmentcharge of $19.9 million, recorded within R&D in the consolidated incomestatement, to write-down these assets to their fair value. The fair value ofthese assets was determined using the income approach, which used significantunobservable (Level 3) inputs. These unobservable inputs included, among otherthings, risk-adjusted forecast future cash flows to be generated by theseassets and the determination of an appropriate discount rate to be applied incalculating the present value of forecast future cash flows. The fair value ofthese assets, determined at the time of the impairment review, was $20.3million. Quantitative information about Non-Recurring Level 3 Fair Value Measurementswhich occurred in the period is included below: Fair Value at the Measurement Date At June 30, 2013 Fair value Valuation Significant Rate used Technique unobservable Inputs $'M ____________ ___________ ___________ ___________Movetis-related IPR&D 20.3 Income - Decline in - 50%intangible assets approach forecast (discounted peak sales since cash last flow) impairment test - 8.9% - Assumed market participant discount rate ____________ ____________ ____________ ____________ Financial assets and liabilities that are not measured at fair value on arecurring basis The carrying amounts and estimated fair values as at June 30, 2013 andDecember 31, 2012 of the Group's financial assets and liabilities which arenot measured at fair value on a recurring basis are as follows: June 30, 2013 December 31, 2012 Carrying Carrying amount Fair value amount Fair value $'M $'M $'M $'M ____________ ____________ ____________ ___________ Financial liabilities:Convertible bonds (Level 1) 1,100.0 1,211.3 1,100.0 1,228.2Building financing obligation 7.8 10.5 8.0 10.3(Level 3) ____________ ____________ ____________ ___________ Certain estimates and judgments were required to develop the fair valueamounts. The fair value amounts shown above are not necessarily indicative ofthe amounts that the Group would realize upon disposition, nor do theyindicate the Group's intent or ability to dispose of the financial instrument. The following methods and assumptions were used to estimate the fair value ofeach material class of financial instrument: - Convertible bonds - the fair value of Shire's $1,100 million 2.75%convertible bonds due 2014 is determined by reference to the market price ofthe instrument as the convertible bonds are publicly traded. - Building finance obligations - the fair value of building financeobligations are estimated based on the present value of future cash flows, andan estimate of the residual value of the underlying property at the end of thelease term, associated with these obligations. The carrying amounts of other financial assets and liabilities materiallyapproximate to their fair value because of the short-term maturity of theseamounts. 17. Earnings per share The following table reconciles net income and the weighted average ordinaryshares outstanding for basic and diluted earnings per share for the periodspresented: 6 months to 6 months to June 30, June 30, 2013 2012 $'M $'M _________________ _________________ Numerator for basic earnings per share 322.9 476.2 Interest on convertible bonds, net of tax 15.1 16.2 _________________ _________________ Numerator for diluted earnings per share 338.0 492.4 _________________ _________________ Weighted average number of shares: Millions Millions _________________ _________________ Basic 1 550.5 555.2 Effect of dilutive shares: Share based awards to employees 2 3.3 6.1 Convertible bonds 2.75% due 2014 3 33.7 33.5 _________________ _________________ Diluted 587.5 594.8 _________________ _________________ 1. Excludes shares purchased by the EBT and under the share buy-back programand presented by Shire as treasury stock. 2. Calculated using the treasury stock method. 3. Calculated using the `if-converted' method. The share equivalents not included in the calculation of thediluted weighted average number of shares are shown below: 6 months to 6 months to June 30, June 30, 2013 2012 No. of shares No. of shares Millions Millions _________________ _________________Share based awards to employees1 9.1 4.5 _________________ _________________ 1. Certain stock options have been excluded from the calculation of dilutedEPS because (a) their exercise prices exceeded Shire plc's average share priceduring the calculation period or (b) the required performance conditions werenot satisfied as at the balance sheet date. 18. Segmental reporting For the six months to June 30, 2013 Shire's internal financial reporting is inline with its existing business unit and management reporting structure. TheGroup has three business units and three reportable segments: SP, HGT and RM.The SP, HGT and RM reportable segments represent the Group's revenues andcosts for currently promoted and sold products, together with the costs ofdeveloping products for future commercialization. `All Other' has beenincluded in the table below in order to reconcile the three segments to thetotal consolidated figures. The Group evaluates performance based on revenue and operating income. TheGroup does not have inter-segment transactions. Assets that are directlyattributable or allocable to the segments have been separately disclosed. On May 2, 2013 the Group announced that there would be a re-alignment of theGroup's business to integrate the three divisions into a simplified "OneShire" organization in order to drive future growth and innovation. The Groupis continuing to evaluate the timing and impact that this re-alignment willhave on its operating and reportable segments. SP HGT RM All Other Total6 months to June 30, 2013 $'M $'M $'M $'M $'M ___________ ___________ ___________ ___________ ___________Product sales 1,559.3 746.8 40.8 - 2,346.9Royalties 50.3 - - 24.5 74.8Other revenues 11.2 3.5 - - 14.7 ___________ ____________ ____________ ___________ ___________Total revenues 1,620.8 750.3 40.8 24.5 2,436.4 ___________ ____________ ____________ ___________ ___________ Cost of product sales(1) 180.8 130.9 19.8 0.1 331.6Research and development(1) 329.3 140.3 14.7 - 484.3Selling, general andadministrative(1) 500.1 208.8 94.9 92.5 896.3Goodwill impairment charge - - 198.9 - 198.9Gain on sale of product rights (11.0) - - - (11.0)Reorganization costs - - - 43.9 43.9Integration and acquisition costs 11.8 8.0 1.7 - 21.5 _____________ ____________ ____________ ___________ ___________Total operating expenses 1,011.0 488.0 330.0 136.5 1,965.5 _____________ ____________ ____________ ___________ ___________Operating income/(loss) 609.8 262.3 (289.2) (112.0) 470.9 _____________ ____________ ____________ ___________ ___________ Total assets 3,058.6 2,220.2 748.1 1,876.0 7,902.9Long-lived assets(2) 117.2 684.2 52.5 102.1 956.0Capital expenditure on long-livedassets(2) 16.9 22.8 24.3 12.2 76.2 _____________ ___________ ___________ ___________ ___________ (1) Depreciation from manufacturing plants ($17.8 million) is included in Costof product sales; depreciation of research and development assets ($8.9million) and impairment of IPR&D intangible assets in the SP reporting segment($19.9 million) is included in Research and development; and all otherdepreciation and amortization charges ($124.5 million) is included in Selling,general and administrative. (2) Long-lived assets comprise all non-current assets (excluding goodwill andother intangible assets, deferred contingent consideration assets, deferredtax assets, investments, income tax receivable and financial instruments). SP HGT RM All Other Total6 months to June 30, 2012 $'M $'M $'M $'M $'M ___________ ___________ ___________ ___________ ___________Product sales 1,442.2 711.2 101.2 - 2,254.6Royalties 87.8 - - 24.8 112.6Other revenues 11.9 0.5 - - 12.4 ___________ ____________ ____________ ___________ ___________Total revenues 1,541.9 711.7 101.2 24.8 2,379.6 ___________ ____________ ____________ ___________ ___________ Cost of product sales(1) 171.9 112.0 27.0 - 310.9Research and development(1) 289.3 162.3 7.3 - 458.9Selling, general andadministrative(1) 611.6 200.4 84.2 114.8 1,011.0Gain on sale of product rights (10.8) - - - (10.8)Integration and acquisition costs 4.4 - 8.0 - 12.4 _____________ ____________ ____________ ___________ ___________Total operating expenses 1,066.4 474.7 126.5 114.8 1,782.4 _____________ ____________ ____________ ___________ ___________Operating income/(loss) 475.5 237.0 (25.3) (90.0) 597.2 _____________ ____________ ____________ ___________ ___________ Total assets 2,534.6 1,931.1 980.5 1,594.8 7,041.0Long-lived assets(2) 130.1 707.9 25.0 64.2 927.2Capital expenditure on long-livedassets(2) 19.2 26.3 0.1 8.2 53.8 _____________ ___________ ___________ ___________ ___________ (1) Depreciation from manufacturing plants ($14.2 million) is included in Costof product sales; depreciation of research and development assets ($12.8million) and impairment of IPR&D intangible assets in the SP reporting segment($27.0 million) is included in Research and development; and all otherdepreciation and amortization charges ($124.7 million) is included in Selling,general and administrative. (2) Long-lived assets comprise all non-current assets (excluding goodwill andother intangible assets, deferred contingent consideration assets, deferredtax assets, investments, income tax receivable and financial instruments). Non GAAP Measure This Half Yearly Report contains a financial measure not prepared inaccordance with US GAAP which is: Non GAAP operating income. This Non GAAPmeasure excludes the effect of certain cash and non-cash items that Shire'smanagement believes are not related to the core performance of Shire'sbusiness. This Non GAAP financial measures are used by Shire's management to makeoperating decisions because they facilitate internal comparisons of Shire'sperformance to historical results and to competitors' results. Shire'sRemuneration Committee uses certain key Non GAAP measures when assessing theperformance and compensation of employees, including Shire's executivedirectors. The Non GAAP measures are presented in this Half Yearly Report as Shire'smanagement believe that it will provide investors with a means of evaluating,and an understanding of how Shire's management evaluates, Shire's performanceand results on a comparable basis that is not otherwise apparent on a US GAAPbasis, since many non-recurring, infrequent or non-cash items that Shire'smanagement believe are not indicative of the core performance of the businessmay not be excluded when preparing financial measures under US GAAP. This Non GAAP measure should not be considered in isolation from, assubstitute for, or superior to financial measures prepared in accordance withUS GAAP. Where applicable the following items, including their tax effect, have beenexcluded from both 2013 and 2012 Non GAAP earnings: Amortization and asset impairments: - Intangible asset amortization and impairment charges; and - Other than temporary impairment of investments. Acquisitions and integration activities: - Upfront payments and milestones in respect of in-licensed and acquiredproducts; - Costs associated with acquisitions, including transaction costs, fair valueadjustments on contingent consideration and acquired inventory; - Costs associated with the integration of companies; and - Noncontrolling interest in consolidated variable interest entities. Divestments, re-organizations and discontinued operations: - Gains and losses on the sale of non-core assets; - Costs associated with restructuring and re-organization activities; - Termination costs; and - Income / (losses) from discontinued operations. Legal and litigation costs: - Net legal costs related to the settlement of litigation, governmentinvestigations and other disputes (excluding internal legal team costs). Sales growth at CER, which is a Non GAAP measure, is computed by restating2013 results using average 2012 foreign exchange rates for the relevantperiod. Average exchange rates for the six months to June 30, 2013 were $1.55:£1.00and $1.31:€1.00 (2012: $1.58:£1.00 and $1.31:€1.00). Average exchange ratesfor Q2 2013 were $1.53:£1.00 and $1.30:€1.00 (2012: $1.59:£1.00 and$1.30:€1.00). Independent review report to Shire plc We have been engaged by Shire plc ("the Company") to review thecondensed consolidated set of financial statements for the Company and itssubsidiaries (the "Group") in the Half Yearly Report for the six months endedJune 30, 2013 which comprises the consolidated balance sheet, consolidatedstatements of income, consolidated statements of comprehensive income,consolidated statements of changes in equity, the consolidated statements ofcash flows and related notes 1 to 18. We have read the other informationcontained in the Half Yearly Report and considered whether it contains anyapparent misstatements or material inconsistencies with the information in thecondensed set of financial statements. This report is made solely to the Company in accordance withInternational Standard on Review Engagements (UK and Ireland) 2410 "Review ofInterim Financial Information Performed by the Independent Auditor of theEntity" issued by the Auditing Practices Board. Our work has been undertakenso that we might state to the Company those matters we are required to stateto it in an independent review report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother than the Company, for our review work, for this report, or for theconclusions we have formed. Directors' responsibilities The Half Yearly Report is the responsibility of, and has beenapproved by, the directors. The directors are responsible for preparing theHalf Yearly Report in accordance with the Disclosure and Transparency Rules ofthe United Kingdom's Financial Conduct Authority. As disclosed in Note 1, the annual financial statements of theCompany are prepared in accordance with accounting principles generallyaccepted in the United States of America ("US GAAP"). The condensed set offinancial statements included in this Half Yearly Report has 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 thecondensed set of financial statements in the Half Yearly Report based on ourreview. Scope of review We conducted our review in accordance with International Standardon Review Engagements (UK and Ireland) 2410 "Review of Interim FinancialInformation Performed by the Independent Auditor of the Entity" issued by theAuditing Practices Board for use in the United Kingdom. A review of interimfinancial information consists of making inquiries, primarily of personsresponsible for financial and accounting matters, and applying analytical andother review procedures. A review is substantially less in scope than an auditconducted in accordance with International Standards on Auditing (UK andIreland) and consequently does not enable us to obtain assurance that we wouldbecome aware of 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 causesus to believe that the condensed set of financial statements in the HalfYearly Report for the six months ended June 30, 2013 is not prepared, in allmaterial respects, in accordance with US GAAP and the Disclosure andTransparency Rules of the United Kingdom's Financial Conduct Authority. Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom

August 9, 2013