Shire reports 7% product sales growth

Shire reports 7% product sales growth: anticipating double digitNon GAAP earnings growth in 2013 July 25, 2013 - Shire (LSE: SHP, NASDAQ: SHPG) announces results for the threemonths to June 30, 2013. Financial Highlights Q2 2013 Reported Growth(1) $1,230Product sales million +7% $1,275Total revenues million +6% Non GAAP operating income $452 million +8%US GAAP operating income $342 million +13% Non GAAP diluted earnings per ADS $1.79 +6%US GAAP diluted earnings per ADS $1.36 +10% Non GAAP cash generation $374 million -28%Non GAAP free cash flow $241 million -44%US GAAP net cash provided by operatingactivities $259 million -44% (1) Percentages compare to equivalent 2012 period. The Non GAAP financial measures included within this release are explained onpage 24, and are reconciled to the most directly comparable financial measuresprepared in accordance with US GAAP on pages 19 - 23. GOOD PROGRESS: INCREASING GROWTH AND STRONG OPERATIONAL LEVERAGE IN Q2 - Product sales growth increased to 7% year on year as expected - Non GAAP Operating Income +8% reflecting strong operating leverage in Q22013 and year to date - Non GAAP earnings per ADS +6%, held back by the timing of quarterly taxcharges 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 LDX for binge eating and majordepressive disorders - Continued but focused R&D investment in other development 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 Flemming Ornskov, M.D., Chief Executive Officer, commented: "We are pleased with our Q2 results, have made good progress and have returnedto higher growth. We're successfully executing our strategy, which is to grow by focusing oninnovation-driven specialty products through both R&D and M&A. We've sharpenedour focus on commercial excellence and we're enhancing our pipelineproductivity. Our late Phase 3 projects lifitegrast and LDX for BED areprogressing well and are programs in which we have increasing 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." FINANCIAL SUMMARY Second Quarter 2013 Unaudited Results Q2 2013 Q2 2012 US GAAP Adjustments Non GAAP US GAAP Adjustments Non GAAP $M $M $M $M $M $MTotal revenues 1,275 - 1,275 1,208 - 1,208Operating income 342 110 452 302 118 420 Diluted earningsper ADS $1.36 $0.43 $1.79 $1.24 $0.44 $1.68 - Product sales in Q2 2013 were $1,230 million, up 7% when compared against astrong set of comparatives in Q2 2012. On a Constant Exchange Rate ("CER")basis, which is a Non GAAP measure, product sales were up 8%. Six of our top ten products delivered double digit growth: VYVANSE® (up 13% to$300 million), ELAPRASE® (up 22% to $149 million), LIALDA®/MEZAVANT® (up 46%to $138 million), INTUNIV® (up 31% to $90 million), PENTASA® (up 15% to $74million), and FIRAZYR® (up 56% to $50 million). LIALDA/MEZAVANT sales in Q2 2013 were particularly strong due in part to newmanaged care contracts in the US. ELAPRASE sales in Q2 2013 benefited from thetiming of shipments to markets with large infrequent orders. Growth in total product sales was moderated by DERMAGRAFT® (down 57% to $22million), ADDERALL XR® (down 16% to $112 million) and REPLAGAL® (down 7% to$114 million; down 5% on a CER basis). Q2 2013 sales for all three productscompare against strong prior year comparatives that will ease over the secondhalf of the year. The return of competition to the Fabry market in Europe was a factor in thelower REPLAGAL product sales, as was the timing of shipments which havedistorted quarter on quarter growth rates in both 2013 and 2012. However,recent positive trends in patient dynamics indicate that the impact ofswitches to the competitor product is diminishing and we continue to seestrong growth in the number of new naïve patients starting on REPLAGALglobally. Sales of $114 million in Q2 2013 were flat against Q1 2013 and weexpect similar levels in Q3 2013 with sequential growth in the final quarterof the year. - Total revenues were up 6% to $1,275 million (Q2 2012: $1,208 million) as thegrowth in product sales was partially offset, as expected, by lower royalties,particularly from ADDERALL XR. - On a Non GAAP basis: Operating income was up 8% to $452 million (Q2 2012: $420 million), reflectingfurther operating leverage as total operating costs increased at a lower rate(up 4%) than total revenues. Research and Development expenditure was up 15%as we continue to progress a number of promising pipeline programs. Theincrease was moderated by lower Selling, General and Administrativeexpenditure (down 5%) as we focus on simplifying our business, deliveringefficient growth and with that enhanced margins. On a US GAAP basis: Operating income was up 13% to $342 million (Q2 2012: $302 million) as thegood underlying operating leverage in Q2 2013 further benefited from lowerlegal and litigation costs and lower impairment charges, only partially offsetby higher reorganization and acquisition costs compared to the prior year. - Non GAAP diluted earnings per American Depository Share ("ADS") increased 6%to $1.79 (Q2 2012: $1.68) as higher Non GAAP operating income was partiallyoffset by a higher effective tax rate on Non GAAP income of 23% (Q2 2012:20%). On a US GAAP basis, diluted earnings per ADS increased 10% to $1.36 (Q2 2012:$1.24), due to higher US GAAP operating income partially offset by a higher USGAAP effective tax rate of 22% (Q2 2012: 18%). - Cash generation, a Non GAAP measure, was 28% lower at $374 million (Q2 2012:$520 million) due to timing of receipts from large distributors in the US andoperating expenses payments in Q2 2013 as compared to Q2 2012. In additioncash generation in Q2 2012 benefited from significant cash receipts fromgovernment-supported healthcare providers in Spain. Free cash flow, also a Non GAAP measure, decreased by 44% to $241 million (Q22012: $433 million) primarily due to the lower cash generation and the effectof higher cash tax payments in Q2 2013 as compared to Q2 2012. On a US GAAP basis, net cash provided by operating activities was down 44% to$259 million (Q2 2012: $466 million). OUTLOOK As we look forward to the remainder of the year, we anticipate delivering fullyear double digit Non GAAP earnings growth in 2013. Based on our actual results to date and anticipated trends for the remainderof the year, we continue to expect full year product sales growth in themid-to-high single digits. We expect the rate of product sales growth, aspreviously guided, to show improvement over the balance of the year as ourportfolio continues to deliver growth and we benefit from an easing ofcomparatives in the second half. We have narrowed our estimates for royalties and other revenues, which are nowexpected to be 35-40% lower than 2012. Our Non GAAP gross margin is expected to remain at a similar level to 2012. We continue to invest behind our promising pipeline and to progress our latestage clinical trials. Non GAAP R&D in 2013 is now expected to grow in the lowdouble digits as compared to the full year 2012. While we expect to see a higher level of Non GAAP SG&A in the second halfcompared to the first half of 2013 as we increase commercial investment behindVYVANSE. We now anticipate Non GAAP SG&A for the full year to be 2-4% lowerthan 2012. We now expect combined Non GAAP R&D and SG&A to be only marginally higher thanin 2012, supporting operating leverage for the full year. Our core effective tax rate on Non GAAP income is anticipated to remain in therange of 18-20%. As we look forward to the remainder of the year, we anticipatedelivering full year double digit Non GAAP earnings growth in 2013. SECOND QUARTER 2013 AND RECENT PIPELINE DEVELOPMENTS Pipeline INTUNIV - for the treatment of Attention Deficit Hyperactivity Disorder("ADHD") in Canada - On July 5, 2013 Shire received approval from Health Canada forINTUNIV XRTM (guanfacine hydrochloride extended-release tablets) asmonotherapy for the treatment of ADHD in children aged 6 to 12 years and asadjunctive therapy to psychostimulants for the treatment of ADHD in children,aged 6 to 12 years, with a sub-optimal response to psychostimulants. Thetargeted launch date is November 2013. SPD602 - for the treatment of transfusion-dependent iron overload - In June 2013 data from an on-going phase 2 study was presented atthe 18th Congress of the European Hematology Association. Seventy-two-weekdata in patients with hereditary anemias indicate that the safety,tolerability and efficacy profile of SPD602 supports its continueddevelopment. Full data from the ongoing phase 2 proof-of-concept program willbe available mid-2014. SPD557 - for the treatment of refractory gastroesophageal refluxdisease ("rGERD") - This program has been discontinued following review of headlinedata from the proof-of-concept study which did not support continueddevelopment. SPD554 (selective α2A agonist) - for the treatment of variouscentral nervous system disorders - This program has been discontinued as part of ongoing portfolioprioritization assessments. OTHER DEVELOPMENTS Legal Proceedings LIALDA patent litigation - On May 9, 2013 Shire announced that it had prevailed in its litigationagainst Watson Pharmaceuticals Inc., Watson Laboratories, Inc.-Florida, WatsonPharma, Inc. and Watson Laboratories, Inc. (collectively "Watson", now"Actavis") in connection with their ANDA for a generic version of Shire'sLIALDA. Following a bench trial, the US Court for the Southern District ofFlorida upheld the validity of US Patent No. 6,773,720 and ruled that theproposed generic product infringes that patent. Actavis has appealed thisruling to the Court of Appeals of the Federal Circuit. Share Buy-Back Program - In Q4 2012 Shire commenced a share buy-back program, for thepurpose of returning funds to shareholders, of up to $500 million, throughboth direct purchases of Ordinary Shares and through the purchase of OrdinaryShares underlying American Depositary Receipts. As of July 24, 2013 Shire hadmade on-market repurchases totaling 9,567,253 Ordinary Shares at a cost of$289.9 million (excluding transaction costs). DIVIDEND In respect of the six months ended June 30, 2013 the Board resolved to pay aninterim dividend of 3.00 US cents per Ordinary Share (2012: 2.73 US cents perOrdinary Share). Dividend payments will be made in Pounds Sterling to holders of OrdinaryShares and in US Dollars to holders of ADSs. A dividend of 1.95 pence perOrdinary Share (an increase of 12% compared to 2012: 1.74 pence) and 9.00 UScents 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. ADDITIONAL INFORMATION The following additional information is included in this press release: PageOverview of Second Quarter 2013 Financial Results 6Financial Information 10Non GAAP Reconciliation 19Notes to Editors 23Safe Harbor Statement 24Explanation of Non GAAP Measures 24Trade marks 25For further information please contact: Investor Relations - Eric Rojas [email protected] +1 781 482 0999 +44 1256 894 - Sarah Elton-Farr [email protected] 157Media +44 1256 894 - Jessica Mann [email protected] 280 - Gwen Fisher [email protected] +1 484 595 9836 - Jessica Cotrone [email protected] +1 781 482 9538 Dial in details for the live conference call for investors 14:00 BST / 09:00EDT on July 25, 2013: UK dial in: 0808 237 0030 or 0203 139 4830 US dial in: 1 866 928 7517 or 1 718 873 9077 International Access Numbers: http://wpc.1726.planetstream.net/001726/FEL_Events_International_Access_List.p Password/Conf ID: 35386459# Live Webcast: http://www.shire.com/shireplc/en/investors OVERVIEW OF SECOND QUARTER 2013 FINANCIAL RESULTS 1. Product sales For the three months to June 30, 2013 product sales increased by 7% to $1,230million (Q2 2012: $1,148 million) and represented 97% of total revenues (Q22012: 95%). US Exit Market Year on year growth Share(1) Non GAAPProduct sales Sales $M Sales CER US Rx(1) VYVANSE(2) 300.3 +13% +13% +7% 16%ELAPRASE 149.2 +22% +25% n/a(3) n/a(3)LIALDA/MEZAVANT 137.5 +46% +46% +17% 26%REPLAGAL 114.1 -7% -5% n/a(4) n/a(4)ADDERALL XR 112.3 -16% -16% -11% 5%INTUNIV 90.4 +31% +31% +10% 5%VPRIV® 82.5 - +1% n/a(3) n/a(3)PENTASA 73.6 +15% +15% -1% 14%FIRAZYR 49.5 +56% +56% n/a(3) n/a(3)DERMAGRAFT 22.3 -57% -57% n/a(3) n/a(3)OTHER 98.5 -9% -8% n/a n/aTotal 1,230.2 +7% +8% (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) Lisdexamfetamine ("LDX") currently marketed as VYVANSE in theUS & Canada, VENVANSE® in Latin America and ELVANSE® in certain territories inthe EU. (3) IMS NPA Data not available. (4) Not sold in the US in Q2 2013. VYVANSE - ADHD VYVANSE product sales showed strong growth (up 13%) in Q2 2013 compared to Q22012, primarily as a result of higher prescription demand (up 7%) and to alesser extent the effect of a price increase taken since Q2 2012, the benefitof which was partially offset by higher destocking in Q2 2013 compared to Q22012. ELAPRASE - Hunter syndrome Product sales from ELAPRASE in Q2 2013 were up 22% (up 25% on a CER basis)compared to Q2 2012 primarily due to the impact of the timing of large ordersto certain markets which order less frequently, in addition to underlyinggrowth in patient numbers. LIALDA/MEZAVANT - Ulcerative Colitis Product sales for LIALDA/MEZAVANT in Q2 2013 were up 46%. New Managed Carecontracts in the US contributed to increased prescription demand (up 17%) andstocking in Q2 2013 (compared to destocking in Q2 2012). To a lesser extentsales also benefited from the effect of a price increase taken since Q2 2012. REPLAGAL - Fabry disease REPLAGAL sales were down 7% (down 5% on a CER basis) as compared to Q2 2012partly due to the return of competition to the Fabry market in Europe and thetiming of shipments which have distorted quarter on quarter growth rates inboth 2013 and 2012. However, recent positive trends in patient dynamicsindicate that the impact of switches to the competitor product is diminishingand we continue to see strong growth in the number of new naïve patientsstarting on REPLAGAL globally. Sales of $114.1 million in Q2 2013 were flatagainst Q1 2013 and we expect similar levels in Q3 2013 with sequential growthin the final quarter of the year. ADDERALL XR - ADHD ADDERALL XR product sales decreased (down 16%) in Q2 2013 primarilyas a result of lower US prescription demand (down 11%) following theintroduction of a new generic competitor in June 2012 and the effect of highersales deductions as a percentage of sales in Q2 2013 compared to Q2 2012. INTUNIV - ADHD The strong growth in INTUNIV product sales (up 31%) in Q2 2013 wasdriven by both growth in US prescription demand (up 10%) and the effect ofprice increases taken since Q2 2012. VPRIV - Gaucher disease VPRIV product sales were flat (up 1% on a CER basis) in Q2 2013,reflecting the relatively strong quarterly sales seen in Q2 2012 whichbenefited from higher US volumes and the timing of orders to Latin America.The number of patients on therapy continues to grow. PENTASA - Ulcerative Colitis PENTASA product sales (up 15%) benefited from both price increases taken sinceQ2 2012 and the impact of moderate stocking in Q2 2013 compared to a smallamount of pipeline destocking in Q2 2012. FIRAZYR - Hereditary Angioedema FIRAZYR product sales (up 56%) showed strong growth reflecting thecontinuing global growth of the product, particularly in the US market. DERMAGRAFT - Diabetic Foot Ulcers DERMAGRAFT product sales grew by 21% compared to Q1 2013 but weredown 57% compared to Q2 2012. 2. Royalties Year on year growth Royalties toProduct Shire $M Royalties CER 3TC® and ZEFFIX® 1.00 11.3 +7% +8%FOSRENOL® 1.00 10.8 -17% -17%ADDERALL XR 1.00 4.9 -81% -81%Other 1.00 9.3 +33% +29%Total 1.00 36.3 -36% -35% Royalties from ADDERALL XR in Q2 2013 were significantly impactedby both reduced sales volume and a lower royalty rate being payable to Shireby Impax Laboratories, Inc. for its authorised generic product following thelaunch of a new generic product in June 2012. 3. Financial details Cost of product sales % of % of product product Q2 2013 sales Q2 2012 sales $M $MCost of product sales (US 175.7 14% 152.5 13%GAAP)Depreciation (10.0) (7.0)Cost of product sales (Non 165.7 13% 145.5 13%GAAP) Cost of product sales as a percentage of product sales remained broadlyconstant in Q2 2013 as compared to Q2 2012. Research and Development ("R&D") % of % of product product Q2 2013 sales Q2 2012 sales $M $MR&D (US GAAP) 260.1 21% 238.6 21%Impairment of intangible (19.9) (27.0)assetsDepreciation (4.3) (6.4)R&D (Non GAAP) 235.9 19% 205.2 18% Non GAAP R&D increased by $30.7 million, or 15%, due to the continuedinvestment in our R&D pipeline, primarily on non-ADHD programs for LDX, onSPD602 for iron overload and the impact of development programs acquiredthrough business development in 2013. US GAAP R&D increased by $21.5 million, or 9%, a lower rate of increase thanon a Non GAAP basis primarily due to lower impairment charges of IPR&Dintangible assets acquired through Movetis N.V. ("Movetis"), compared to Q22012. Selling, General and Administrative ("SG&A") % of % of product product 2013 sales 2012 sales $M $MSG&A (US GAAP) 457.6 37% 511.0 45%Intangible asset (45.8) (51.0)amortizationLegal and litigation costs (5.3) (35.9)Depreciation (16.1) (14.5)SG&A (Non GAAP) 390.4 32% 409.6 36% Non GAAP SG&A decreased by $19.2 million, or 5%, due to our continuing focuson simplifying our business and delivering efficient growth. US GAAP SG&A decreased by $53.4 million, or 10%, a higher rate of decreasethan on a Non GAAP basis primarily due to higher legal and litigation costsincurred in Q2 2012, as compared to Q2 2013. Gain on sale of product rights For the three months to June 30, 2013 Shire recorded a gain on saleof product rights of $4.5 million (2012: $3.6 million) followingre-measurement of the contingent consideration receivable from the divestmentof DAYTRANA®. Reorganization costs For the three months to June 30, 2013 Shire recorded reorganizationcosts of $26.4 million (Q2 2012: $nil) primarily relating to the "One Shire"reorganization as we transition to a new operating structure. The charges inQ2 2013 primarily related to property costs arising from the decisions to notrelocate to a new site in Pennsylvania and to limit the site expansion in SanDiego to manufacturing facilities only. Integration and acquisition costs For the three months to June 30, 2013 Shire recorded integration andacquisition costs of $17.4 million primarily associated with the acquisitionsof SARcode Biosciences Inc. ("SARcode") and Lotus Tissue Repair, Inc.("Lotus") in addition to charges related to the change in fair value ofcontingent consideration. In Q2 2012 integration and acquisition costs ($7.1million) primarily related to the acquisition of FerroKin Biosciences, Inc.("FerroKin") and integration of Advanced BioHealing Inc. ("ABH"). Interest expense For the three months to June 30, 2013 Shire incurred interest expense of $8.9million (Q2 2012: $9.6 million). Interest expense in Q2 2013 principallyrelates to the coupon on Shire's $1,100 million 2.75% convertible bonds due2014. Taxation The effective rate of tax on Non GAAP income in Q2 2013 was 23% (Q22012: 20%), and on a US GAAP basis the effective rate of tax was 22% (Q2 2012:18%). The effective rate of tax in Q2 2013 on both a Non GAAP and US GAAP basis ishigher than the same period in 2012 due primarily to changes in both profitmix and estimates of the amount of certain tax liabilities following thefinalisation of various tax returns. In addition, on a US GAAP basis, theeffective rate of tax is further increased by the impact of higher integrationand acquisition costs in Q2 2013 which are not deductible for tax purposes.Our core Non GAAP tax rate guidance for 2013 remains at 18% to 20%. FINANCIAL INFORMATION TABLE OF CONTENTS Page Unaudited US GAAP Consolidated Balance Sheets 11 Unaudited US GAAP Consolidated Statements of Income 12 Unaudited US GAAP Consolidated Statements of CashFlows 14 Selected Notes to the Unaudited US GAAP FinancialStatements(1) Earnings per share 16(2) Analysis of revenues 17 Non GAAP reconciliation 19 Unaudited US GAAP financial position as of June 30, 2013Consolidated Balance Sheets June 30, December 31, 2013 2012 $M $MASSETSCurrent assets:Cash and cash equivalents 1,301.9 1,482.2Restricted cash 17.6 17.1Accounts receivable, net 915.2 824.2Inventories 492.2 436.9Deferred tax asset 212.5 229.9Prepaid expenses and other current assets 289.1 221.8 Total current assets 3,228.5 3,212.1 Non-current assets:Investments 33.2 38.7Property, plant and equipment ("PP&E"), net 953.1 955.8Goodwill 611.6 644.5Other intangible assets, net 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 1,456.7 1,501.5Convertible bonds 1,100.0 -Other current liabilities 158.8 144.1 Total current liabilities 2,715.5 1,645.6 Non-current liabilities:Convertible bonds - 1,100.0Deferred tax liability 731.4 520.8Other non-current liabilities 624.5 241.6 Total liabilities 4,071.4 3,508.0 Equity:Common stock of 5p par value; 1,000 millionshares authorized; and 562.8 million sharesissued and outstanding (2012: 1,000 millionshares authorized; and 562.5 million sharesissued and outstanding) 55.8 55.7Additional paid-in capital 3,024.1 2,981.5Treasury stock: 14.5 million shares (2012: 10.7million) (476.9) (310.4)Accumulated other comprehensive income 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 Unaudited US GAAP results for the three months and six months to June 30, 2013Consolidated Statements of Income 3 months to 3 months to 6 months to 6 months to June 30, June 30, June 30, June 30, 2013 2012 2013 2012 $M $M $M $MRevenues:Product sales 1,230.2 1,147.7 2,346.9 2,254.6Royalties 36.3 56.3 74.8 112.6Other revenues 8.0 3.8 14.7 12.4Total revenues 1,274.5 1,207.8 2,436.4 2,379.6 Costs and expenses:Cost of product sales 175.7 152.5 331.6 310.9R&D(1) 260.1 238.6 484.3 458.9SG&A(1) 457.6 511.0 896.3 1,011.0Goodwill impairment charge - - 198.9 -Gain on sale of productrights (4.5) (3.6) (11.0) (10.8)Reorganization costs 26.4 - 43.9 -Integration and acquisitioncosts 17.4 7.1 21.5 12.4Total operating expenses 932.7 905.6 1,965.5 1,782.4 Operating income 341.8 302.2 470.9 597.2 Interest income 0.5 0.6 1.2 1.4Interest expense (8.9) (9.6) (18.0) (19.8)Other (expense)/income, net (1.4) (1.8) (2.5) 0.1Total other expense, net (9.8) (10.8) (19.3) (18.3) Income before income taxesand equity inearnings/(losses) of equitymethod investees 332.0 291.4 451.6 578.9Income taxes (74.4) (53.0) (129.6) (103.0)Equity in earnings/(losses)of equity method investees,net of taxes 0.5 (0.6) 0.9 0.3Net income 258.1 237.8 322.9 476.2 (1) R&D includes intangible asset impairment charges of $19.9 million for thethree months to June 30, 2013 (2012: $27.0 million) and $19.9 million for thesix months to June 30, 2013 (2012: $27.0 million). SG&A costs includeamortization and impairment charges of intangible assets relating tointellectual property rights acquired of $45.8 million for the three months toJune 30, 2013 (2012: $51.0 million) and $91.7 million for the six months toJune 30, 2013 (2012: $96.6 million). Unaudited US GAAP results for the three months and six months to June 30, 2013Consolidated Statements of Income (continued) 3 months to 3 months to 6 months to 6 months to June 30, June 30, June 30, June 30, 2013 2012 2013 2012 Earnings per Ordinary Share- basic 46.9c 42.7c 58.6c 85.8c Earnings per ADS - basic 140.7c 128.1c 175.8c 257.4c Earnings per Ordinary Share- diluted 45.3c 41.3c 57.5c 82.8c Earnings per ADS - diluted 135.9c 123.9c 172.5c 248.4c Weighted average number ofshares: Millions Millions Millions Millions Basic 549.6 557.0 550.5 555.2Diluted 586.0 594.9 587.5 594.8 Unaudited US GAAP results for the three months and six months to June 30, 2013Consolidated Statements of Cash Flows 3 months to June 30, 6 months to June 30, 2013 2012 2013 2012 $M $M $M $MCASH FLOWS FROM OPERATING ACTIVITIES: Net income 258.1 237.8 322.9 476.2Adjustments to reconcile net income to net cash provided byoperating activities: Depreciation and amortization 76.2 79.4 151.2 152.4 Share based compensation 19.8 21.5 36.4 43.4 Impairment of intangible assets 19.9 27.0 19.9 27.0 Goodwill impairment charge - - 198.9 - Gain on sale of product rights (4.5) (3.6) (11.0) (10.8) Other 19.0 2.7 20.9 4.3Movement in deferred taxes 19.8 (3.3) 21.2 (24.1)Equity in (earnings)/losses of equity method investees (0.5) 0.6 (0.9) (0.3)Changes in operating assets and liabilities: (Increase)/decrease in accounts receivable (51.3) 87.6 (102.6) 22.4 (Decrease)/increase in sales deduction accrual (4.4) (26.9) 40.0 27.6 Increase in inventory (24.8) (42.0) (53.9) (67.0) (Increase)/decrease in prepayments and other assets (4.7) 15.0 (66.5) 32.1 (Decrease)/increase in accounts payable and other liabilities (67.2) 65.1 (160.7) 34.7Returns on investment from joint venture 3.2 4.9 3.2 4.9Net cash provided by operating activities(A) 258.6 465.8 419.0 722.8CASH FLOWS FROM INVESTING ACTIVITIES: Movements in restricted cash 1.7 0.5 (0.5) 6.2Purchases of subsidiary undertakings andbusinesses, net of cash acquired (150.6) (97.0) (227.8) (97.0)Purchases of PP&E (17.7) (32.7) (65.0) (64.4)Purchases of intangible assets - (21.5) - (43.5)Proceeds received on sale of productrights 5.5 4.8 10.3 10.4Other 3.1 0.2 3.7 8.4Net cash used in investing activities(B) (158.0) (145.7) (279.3) (179.9) Unaudited US GAAP results for the three months and six months to June 30, 2013Consolidated Statements of Cash Flows (continued) 3 months to June 30, 6 months to June 30, 2013 2012 2013 2012 $M $M $M $M CASH FLOWS FROM FINANCING ACTIVITIES: Payments to acquire shares under theshare buy-back program (107.1) - (177.7) -Payment of dividend (79.2) (70.7) (79.2) (70.7)Payments to acquire shares by theEmployee Benefit Trust ("EBT") (50.0) (10.7) (50.0) (10.7)Excess tax benefit associated withexercise of stock options 1.7 0.4 6.1 35.2Contingent consideration payments (2.8) - (8.8) -Other (6.8) (3.0) (7.5) (2.4)Net cash used in financing activities(C) (244.2) (84.0) (317.1) (48.6)Effect of foreign exchange rate changeson cash and cash equivalents (D) (5.2) (2.8) (2.9) (1.6)Net (decrease)/increase in cash and cashequivalents(A) +(B) +(C) +(D) (148.8) 233.3 (180.3) 492.7Cash and cash equivalents at beginning ofperiod 1,450.7 879.4 1,482.2 620.0Cash and cash equivalents at end ofperiod 1,301.9 1,112.7 1,301.9 1,112.7 Unaudited US GAAP results for the three months and six months to June 30, 2013 Selected Notes to the Financial Statements (1) Earnings Per Share ("EPS") 3 months to 3 months to 6 months to 6 months to June 30, June 30, June 30, June 30, 2013 2012 2013 2012 $M $M $M $M Numerator for basic EPS 258.1 237.8 322.9 476.2Interest on convertiblebonds, net of tax 7.5 7.8 15.1 16.2 Numerator for diluted EPS 265.6 245.6 338.0 492.4 Weighted average number ofshares: Millions Millions Millions MillionsBasic(1) 549.6 557.0 550.5 555.2Effect of dilutive shares:Share based awards toemployees(2) 2.6 4.4 3.3 6.1Convertible bonds 2.75% due2014(3) 33.8 33.5 33.7 33.5 Diluted 586.0 594.9 587.5 594.8 (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 the diluted weightedaverage number of shares are shown below: 3 months to 3 months to 6 months to 6 months to June 30, June 30, June 30, June 30, 2013 2012 2013 2012 Millions Millions Millions MillionsShare based awards toemployees(1) 11.0 6.3 9.1 4.5 (1) Certain stock options have been excluded from the calculationof diluted EPS because (a) their exercise prices exceeded Shire's averageshare price during the calculation period or (b) the required performanceconditions were not satisfied as at the balance sheet date. Unaudited US GAAP results for the three months to June 30, 2013 Selected Notes to the Financial Statements (2) Analysis of revenues 3 months to June 30, 2013 2012 2013 2013 % % of total $M $M change revenueNet product sales:VYVANSE 300.3 266.2 13% 24%ELAPRASE 149.2 122.2 22% 12%LIALDA/MEZAVANT 137.5 94.1 46% 11%REPLAGAL 114.1 123.2 -7% 9%ADDERALL XR 112.3 133.9 -16% 9%INTUNIV 90.4 69.1 31% 7%VPRIV 82.5 82.7 0% 6%PENTASA 73.6 63.9 15% 6%FIRAZYR 49.5 31.7 56% 4%FOSRENOL 42.1 43.2 -3% 3%XAGRID® 26.5 25.5 4% 2%DERMAGRAFT 22.3 52.4 -57% 2%Other product sales 29.9 39.6 -24% 2%Total product sales 1,230.2 1,147.7 7% 97% Royalties:3TC and ZEFFIX 11.3 10.6 7% 1%FOSRENOL 10.8 13.0 -17% 1%ADDERALL XR 4.9 25.7 -81%