Strategy delivers record quarterly revenues

Press Release Shire's clear and focused strategy delivers record quarterly revenues. NonGAAP diluted earnings per ADS up 60%. Increases Non GAAP diluted earnings per ADS growth guidance to the high thirtypercent range for the full year (2014). October 24, 2014 - Shire (LSE: SHP, NASDAQ: SHPG) announces unaudited resultsfor the three months to September 30, 2014. Financial Highlights Q3 2014 Growth(1) $1,552Product sales million +33%(2) $1,597Total revenues million +32% Non GAAP operating income $717 million +60%US GAAP operating income from continuing operations $572 million +49% Non GAAP EBITDA margin (excluding royalties & otherrevenues)(3) 46% n/aUS GAAP net income margin(4) 30% n/a Non GAAP diluted earnings per ADS $2.93 +60%US GAAP diluted earnings per ADS $2.43 +66% Non GAAP cash generation $612 million +27%Non GAAP free cash flow $575 million +48%US GAAP net cash provided by operating activities $593 million +37% (1) Percentages compare to equivalent 2013 period. The 2013 comparatives inthis release have been recast to exclude the DERMAGRAFT® business fromcontinuing operations following its divestment on January 17, 2014. (2) Product sales from continuing operations, including ViroPharmaIncorporated ("ViroPharma") acquired January 24, 2014, and excluding theDERMAGRAFT business. Product sales excluding products acquired with ViroPharmawere up 19% in Q3 2014. (3) Non GAAP earnings before interest, tax, depreciation andamortization ("EBITDA") as a percentage of product sales, excluding royaltiesand other revenues. (4) US GAAP net income as a percentage of total revenues. The Non GAAP financial measures included within this release are explained onpage 27, and are reconciled to the most directly comparable financial measuresprepared in accordance with US GAAP on pages 20 - 25. Susan Kilsby, Shire's Chairman, commented: "Shire is well-positioned for future growth as we implement our plan to doubleproduct sales to $10 billion by 2020. I am confident that Shire, as anindependent company, will deliver long-term value to our shareholders andimproved outcomes for patients. On behalf of the Board of Directors, I wouldlike to thank the Shire management team and employees for the achievement ofoutstanding financial results during the third quarter." Flemming Ornskov, M.D., Shire's Chief Executive Officer, commented: "Our third quarter results demonstrate our exceptional track record ofdelivering value and growth. We continue to implement our clear and focusedstrategy, as we: - Generated record quarterly product sales of $1,552 million, growing at 33% - Grew Non GAAP diluted earnings per ADS by 60%, and - Delivered Non GAAP cash generation of over $600 million. These results are a testament to our ability to drive top line growth and ourcontinued emphasis on operational discipline. We have seen strong sales performance across our portfolio with all of our topten products delivering double digit growth in the quarter. Rare Diseases, ourlargest business unit, grew by 66%, aided by our acquisition of ViroPharma. Inour Hereditary Angioedema portfolio, CINRYZE performed strongly with quarterlysales of $145 million and FIRAZYR was up 57%. Our Neuroscience and Gastrointestinal business units also contributed to therecord quarter with VYVANSE sales up 19% and LIALDA up 24%. We continue to build our international presence and our expansion into theJapanese market with the approval of VPRIV and AGRYLIN. Our early and late stage pipeline continues to be strengthened, bothinternally, and through business development providing us with new investmentsin Ophthalmology (BIKAM) and Rare Diseases (ArmaGen). The US Food and DrugAdministration accepted with priority review our supplemental new drugapplication for VYVANSE as a treatment for adults with binge eating disorderand we expect to learn about the potential expanded indication in February2015. Our strong momentum and performance this quarter is evidence of our ability todeliver growth, efficiency and innovation through our commitment to addressingsignificant unmet need in Rare Diseases and high-value specialty conditions.As a result, I am pleased to once again increase our guidance for 2014. We nowexpect to deliver Non GAAP diluted earnings per ADS growth in the high thirtypercent range in 2014." FINANCIAL SUMMARY Third Quarter 2014 Unaudited Results Q3 2014 Q3 2013 US GAAP Adjustments Non GAAP US GAAP Adjustments Non GAAP $M $M $M $M $M $MTotal revenues 1,597 - 1,597 1,213 - 1,213Operating income 572 145 717 383 66 449 Diluted earningsper ADS $2.43 $0.50 $2.93 $1.46 $0.37 $1.83 - Product sales grew strongly in Q3 2014, up 33% to $1,552 million (Q3 2013:$1,171 million). Product sales in Q3 2014 included $153 million for productsacquired with ViroPharma Incorporated ("ViroPharma"), primarily $145 millionfrom CINRYZE®. The inclusion of ViroPharma contributed 14% to reported productsales growth in the quarter. Product sales grew 19% excluding products acquired with ViroPharma. Growth wasgenerated across our portfolio but primarily driven by VYVANSE®([1]) (up 19%to $355 million), LIALDA®/MEZAVANT® (up 24% to $177 million), ELAPRASE® (up31% to $169 million) and REPLAGAL® (up 25% to $136 million). Sales of ELAPRASEand REPLAGAL in the quarter benefitted from several large orders fromcustomers who order less frequently. In 2013 comparable orders were recordedin the fourth quarter. - Total revenues were up 32% to $1,597 million (Q3 2013: $1,213 million). - On a Non GAAP basis: Operating income grew strongly in Q3 2014, up 60% to $717 million (Q3 2013:$449 million) as combined Research and Development ("R&D") and Selling,General and Administrative ("SG&A") costs increased at a much lower rate (up10%) than total revenues (up 32%). On a Non GAAP basis: EBITDA margin (excluding royalties and other revenues)([2]) was 46%, up 8percentage points compared to Q3 2013 (Q3 2013: 38%), as we continue todeliver operating leverage. R&D costs were 5% lower compared to Q3 2013. SG&Acosts increased by 19%, due in part to the inclusion of ViroPharma's SG&Acosts and additional commercial spending in advance of anticipated productlaunches for certain products. On a US GAAP basis (from continuing operations): Operating income was up 49% to $572 million (Q3 2013: $383 million), a lowerrate of increase than on a Non GAAP basis as Q3 2014 included higheramortization charges, higher costs associated with acquisitions andintegration activities as well as costs associated with AbbVie's terminatedoffer for Shire. Combined R&D and SG&A was up 21%, with R&D up 1% and SG&A up32% as compared with Q3 2013. Net income margin in Q3 2014 was up 7 percentagepoints to 30% (Q3 2013: 23%). - Non GAAP diluted earnings per American Depository Share ("ADS") increased60% to $2.93 (Q3 2013: $1.83) as a result of higher Non GAAP operating incomeand a lower Non GAAP effective tax rate of 18% in Q3 2014 (Q3 2013: 20%). On a US GAAP basis, diluted earnings per ADS increased 66% to $2.43 (Q3 2013:$1.46) as a result of higher US GAAP operating income and a lower US GAAPeffective tax rate of 11% in Q3 2014 (Q3 2013: 20%). - Cash generation, a Non GAAP measure, was up 27% to $612 million (Q3 2013:$482 million) reflecting higher receipts from product sales and loweroperating expense payments. Cash generation in Q3 2014 was held back bypayments of $59 million in respect of the final agreement with the USGovernment relating to previously disclosed civil investigations, as well aspayments in respect of the One Shire reorganization, AbbVie's terminated offerfor Shire and the integration of ViroPharma. Free cash flow, also a Non GAAP measure, was up 48% to $575 million (Q3 2013:$388 million) due to higher cash generation and lower capital expenditure inthe quarter. On a US GAAP basis, net cash provided by operating activities was up 37% to$593 million (Q3 2013: $434 million). - Net debt, also a Non GAAP measure, was $396 million at September 30, 2014(December 31, 2013: net cash of $2,231 million). On a US GAAP basis, cash and cash equivalents were $468 million at September30, 2014 (December 31, 2013: $2,239 million). OUTLOOK We've delivered a very strong performance so far this year, and as a result weare increasing our guidance. We now expect to deliver Non GAAP earnings perADS growth in the high thirty percent range in 2014 (previous guidance:low-to-mid thirty percent growth). Following our strong product sales performance in the year to date, we nowexpect product sales growth for the full year 2014 in the low twenty percentrange (previous guidance: high teens growth). We anticipate product sales growth in the fourth quarter to be lower thanwe've delivered so far this year, as the third quarter benefited from RareDiseases sales to customers who order less frequently, and as we lap againststronger comparatives in the fourth quarter. We expect royalties and other revenues for 2014 to be 0-5% lower than in 2013,as we now anticipate recognizing additional milestone income in the fourthquarter of 2014. We continue to anticipate that our Non GAAP gross margin will be approximately1 percentage point lower than in 2013. We continue to expect Combined Non GAAP R&D and SG&A to grow by 2-4% comparedto 2013. We expect slightly higher operating costs in the fourth quarter thanseen in the third quarter, as we continue to invest behind our innovative andexciting pipeline. The fourth quarter will also see an increase in commercialspending on Binge Eating Disorder disease awareness ahead of anticipatedlaunch. We continue to expect Non GAAP net interest expense to be approximately $10million lower than in 2013. Our core effective tax rate on Non GAAP income is still expected to be in therange of 17-19%. Our current assumption of the diluted number of ordinary shares for full year2014 is approximately 590 million. Taken together, we now expect to deliver Non GAAP earnings per ADS growth inthe high thirty percent range in 2014 (previous guidance: low-to-mid thirtypercent growth). THIRD QUARTER 2014 AND RECENT PRODUCT AND PIPELINE DEVELOPMENTS Products We continue to make progress building our business in Japan: - On September 26, 2014 Shire was granted a marketing authorization by theMinistry of Health, Labour and Welfare in Japan for AGRYLIN® (1) in adultessential thrombocythaemia patients. - On September 2, 2014 Shire launched VPRIV® in Japan, for theimprovement of symptoms of Gaucher disease, following approval of a marketingauthorization on July 4, 2014 by the Ministry of Health, Labor and Welfare inJapan. VYVANSE - for the treatment of Binge Eating Disorder ("BED") in adults - On September 15, 2014 Shire announced that the US Food and DrugAdministration ("FDA") has accepted for filing with priority review asupplemental New Drug Application ("sNDA") for VYVANSE as a treatment foradults with BED. The FDA is expected to provide a decision in February 2015,based on the anticipated Prescription Drug User Fee Act action date. Pipeline SHP607 - for the prevention of retinopathy of prematurity ("ROP") - On October 17, 2014 Shire submitted an Investigational New Drug ("IND")application for SHP607 with the FDA. The IND is subject to a 30-day reviewperiod. SHP465 - for the treatment of ADHD in adults - On October 9, 2014 Shire announced that it has received further guidancefrom the FDA on the regulatory path for SHP465, an investigational oralstimulant medication being evaluated as a potential treatment for ADHD inadults. This information will impact Shire's plans for a 2014 New DrugApplication ("NDA") resubmission for SHP465. SHP620 (maribavir) for the treatment of cytomegalovirus infection ("CMV") intransplant patients - SHP620 was acquired as part of the acquisition of ViroPharma in Q1 2014.Shire is currently conducting two Phase 2 studies in transplant recipients,both of which are fully enrolled. The first is a trial in first-line treatmentof asymptomatic CMV in transplant recipients. The results showed thatmaribavir, at all doses, was at least as effective as valganciclovir in thereduction of circulating CMV to below the limits of assay detection(undetectable CMV). The second study is a trial for the treatment ofresistant/refractory CMV infection/disease in transplant recipients. Thepurpose of this study is to determine whether maribavir is efficacious andsafe in patients with clinically refractory disease to standard of care CMVtherapy (e.g., valganciclovir, foscarnet) with or without genotypic resistanceto those agents. Preliminary results are expected in early 2015. This producthas been granted orphan drug designation in both the US and EU. ([1]) Currently marketed as XAGRID® in the EU for the treatment of essentialthrombocythaemia. EXECUTIVE COMMITTEE CHANGES - On October 20, 2014 Shire announced that James Bowling, InterimChief Financial Officer ("CFO"), had notified the Board of Directors of hisdecision to step down from his current role to pursue a new careeropportunity. James will leave Shire at the end of Q1 2015 and Shire hascommenced a search for a new CFO. OTHER DEVELOPMENTS Termination of AbbVie's offer for Shire - On October 15, 2014 the Board of AbbVie confirmed that it had withdrawn itsrecommendation of its offer for Shire as a result of the anticipated impact ofthe US Treasury Notice on the benefits that AbbVie expected from its offer. AsAbbVie's offer was conditional on the approval of its stockholders, and giventheir Board's decision to change its recommendation and to advise AbbVie'sstockholders to vote against the offer, there was no realistic prospect ofsatisfying this condition. Accordingly, Shire's Board agreed with AbbVie toterminate the cooperation agreement on October 20, 2014. The UK Takeover Panelhas confirmed that the offer period has ended. Shire has entered into atermination agreement with AbbVie, pursuant to which AbbVie has paid the breakfee under the cooperation agreement of approximately $1.635 billion. Divestment of non-core product rights During the third quarter Shire divested rights to three non-core products fortotal cash consideration of $65 million. - On September 30, 2014 Shire sold its rights to EXPUTEX® to Phoenix Labsalong with other specified assets. - On August 1, 2014 Shire sold its rights to VANCOCIN® to ANI PharmaceuticalsInc. along with other specified assets. - On July 17, 2014 Shire sold its rights to ESTRACE® to Trimel PharmaceuticalsInc. along with other specified assets. Strategic licensing and collaboration agreement with ArmaGen Technologies,Inc. ("ArmaGen") - On July 23, 2014 Shire and ArmaGen, a US-based privately held biotechnologycompany, announced a worldwide licensing and collaboration agreement todevelop and commercialize AGT-182, an investigational enzyme replacementtherapy for the potential treatment of both the central nervous system andsomatic manifestations in patients with Hunter syndrome. This collaborationstrengthens Shire's rare disease pipeline of innovative therapies where thereis high unmet need, and underscores Shire's long standing commitment to theHunter syndrome community. Strategic acquisition of BIKAM Pharmaceuticals Inc. ("BIKAM") - On July 9, 2014 Shire acquired BIKAM, a US-based privately heldbiotechnology company. The lead asset, SHP630 (formerly BIK-406), is inpre-clinical development for the potential treatment of autosomal dominantretinitis pigmentosa. Legal Proceedings Shire reaches final agreement with US Government relating to previouslydisclosed civil investigation - On September 24, 2014 Shire announced that it had resolved all matters withthe US federal government, the 50 states and the District of Columbia relatingto a previously disclosed civil investigation of its US sales and marketingpractices relating to ADDERALL XR®, VYVANSE, DAYTRANA®, LIALDA and PENTASA®.The investigation was led by the US Attorney's Office for the Eastern Districtof Pennsylvania. Under the agreement, Shire has paid $56.5 million, andinterest, fees, and costs, to resolve all issues investigated by thegovernment. This final settlement includes the resolution of two related quitam complaints filed against Shire and a voluntary disclosure relating toLIALDA and PENTASA. In addition, Shire has paid $2.9 million to resolve apreviously disclosed civil complaint filed by the State of Louisiana allegingthat Shire's sales, marketing, and promotion of ADDERALL, ADDERALL XR,DAYTRANA, VYVANSE and INTUNIV® violated state law. Shire recorded a $57.5million provision related to these matters which was charged to SG&A in thefourth quarter of 2012. As part of the resolution, Shire has entered into aCorporate Integrity Agreement with the Office of Inspector General for theDepartment of Health and Human Services for a term of five years. ADDITIONAL INFORMATION The following additional information is included in this press release: PageOverview of Third Quarter 2014 Financial Results 7Financial Information 11Non GAAP Reconciliation 20Notes to Editors 25Safe Harbor Statement 26Explanation of Non GAAP Measures 27Trade Marks 28For further information please contact: Investor Relations - Jeff Poulton [email protected] +1 781 482 0945 +44 1256 894 - Sarah Elton-Farr [email protected] 157 Media - Stephanie Fagan [email protected] +1 781 482 0460 - Gwen Fisher [email protected] +1 484 595 9836Dial in details for the live conference call for investors at 14:00 BST /09:00 EDT on October 24, 2014: 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: Click herePassword/Conf ID: 40489933# Live Webcast: Click here The quarterly earnings presentation will be available today at 13:00 BST /08:00 EDT on: - Shire.com Investors section - Shire's IR Briefcase in the iTunes Store Shire R&D day Shire will hold an R&D day on December 10, 2014 in New York City. For furtherdetails please contact the Shire Investor Relations team. OVERVIEW OF THIRD QUARTER 2014 FINANCIAL RESULTS 1. Product sales For the three months to September 30, 2014 product sales increased by 33%(1)to $1,552 million (Q3 2013: $1,171 million) and represented 97% of totalrevenues (Q3 2013: 97%). Year on year growth US Exit Non GAAP MarketProduct sales(1) Sales $M Sales CER(2) US Rx(3) Share(3) VYVANSE 354.9 +19% +19% +5% 16%LIALDA/MEZAVANT 176.6 +24% +24% +22% 32%ELAPRASE 168.8 +31% +33% n/a(5) n/a(5)CINRYZE(4) 145.1 n/a n/a n/a(5) n/a(5)REPLAGAL 135.9 +25% +27% n/a(6) n/a(6)FIRAZYR 98.4 +57% +57% n/a(5) n/a(5)INTUNIV 96.7 +20% +20% +0% 4%VPRIV 96.4 +10% +10% n/a(5) n/a(5)ADDERALL XR 95.3 +17% +17% +12% 5%PENTASA 78.3 +11% +11% -5% 13%OTHER 105.6 -3% -5% n/a n/aTotal 1,552.0 +33% +33% (1) Product sales from continuing operations, including ViroPharmaacquired January 24, 2014, and excluding DERMAGRAFT which has been treated asdiscontinued operations following divestment on January 17, 2014. (2) On a Constant Exchange Rate ("CER") basis, which is a Non GAAPmeasure. (3) 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 September 30, 2014. (4) CINRYZE product sales in Q3 2014 were up 36% on Q3 2013. Q3 2013 saleswere recorded by ViroPharma, prior to the acquisition of ViroPharma by Shire. (5) IMS NPA Data not available. (6) Not sold in the US in Q3 2014. VYVANSE - ADHD VYVANSE product sales grew strongly in Q3 2014 (up 19% compared to Q3 2013)due to a price increase taken since Q3 2013 and to a lesser extent higher USprescription demand and growth in international markets. LIALDA/MEZAVANT - Ulcerative Colitis Product sales for LIALDA/MEZAVANT in Q3 2014 were up 24%, primarily due tohigher US prescription demand (up 22%) and to a lesser extent a price increasetaken since Q3 2013. Q3 2014 also benefited from higher stocking than seen inQ2 2014. ELAPRASE - Hunter syndrome ELAPRASE product sales in Q3 2014 were up 31% compared to Q3 2013 driven bycontinued growth in the number of treated patients, especially in emergingmarkets. Growth in Q3 2014 also benefited from the timing of large shipmentsto certain markets which order less frequently. Many of these comparableorders in 2013 were made in the fourth quarter and therefore we expectELAPRASE year-on-year sales growth to moderate in Q4 2014. CINRYZE - for the prophylactic treatment of Hereditary Angioedema ("HAE") Shire acquired CINRYZE through its acquisition of ViroPharma in Q12014. CINRYZE sales were $145.1 million in Q3 2014, growing 36% on Q3 2013(1)primarily driven by more patients on therapy, inventory build at specialtypharmacies favourably impacting sales and to a lesser extent, a price increasein the US. (1) Q3 2013 recorded by ViroPharma, prior to the acquisition ofViroPharma by Shire. REPLAGAL - Fabry disease REPLAGAL sales were up 25% compared to Q3 2013 as we continue to see goodgrowth in emerging markets and to a lesser extent higher volume demand inEurope. Q3 2014 also benefited from larger orders for certain markets whichorder less frequently. A comparable order in 2013 was made in the fourthquarter and therefore we expect REPLAGAL year-on-year sales growth to moderatein Q4 2014. FIRAZYR - for the treatment of acute HAE attacks FIRAZYR's strong product sales growth (up 57%) was primarily due togrowth in patients on therapy and the effect of a price increase in the USmarket. INTUNIV - ADHD The growth in INTUNIV product sales (up 20%) in Q3 2014 was drivenby price increases taken since Q3 2013, partially offset by destocking in Q32014 as compared to stocking in Q3 2013. We expect generic competition toenter the market starting in December 2014, which would impact US sales ofINTUNIV. VPRIV - Gaucher disease VPRIV product sales in Q3 2014 were up 10% compared to Q3 2013 aswe continue to add naïve patients and gain patients switching from othertherapies. ADDERALL XR - ADHD ADDERALL XR product sales increased (up 17%) in Q3 2014, primarilydue to increased prescription demand, and lower sales deductions as apercentage of product sales in Q3 2014 as compared to Q3 2013. PENTASA - Ulcerative Colitis PENTASA product sales increased in Q3 2014 (up 11%) driven by price increasestaken since Q3 2013 and a slight increase in stocking. 2. Royalties Year on year growth Royalties toProduct Shire $M Royalties CER FOSRENOL® 1.00 14.6 +6% +6%ADDERALL XR 1.00 9.5 +53% +53%3TC® and ZEFFIX® 1.00 8.8 -13% -13%Other 1.00 7.0 -7% -7%Total 1.00 39.9 +6% +6% 3. Financial details Cost of product sales % of % of product product Q3 2014 sales Q3 2013 sales $M $MCost of product sales (US 254.3 16% 180.5 15%GAAP)Unwind of ViroPharmainventory fair valuestep-up (18.1) -Depreciation (16.9) (10.2)Cost of product sales (Non 219.3 14% 170.3 15%GAAP) Non GAAP cost of product sales as a percentage of product sales decreasedmarginally in Q3 2014 as compared with Q3 2013. US GAAP cost of product sales as a percentage of product sales increasedmarginally in 2014 as Q3 2014 included charges on the unwind of the fair valueadjustment on acquired ViroPharma inventories. R&D % of % of product product Q3 2014 sales Q3 2013 sales $M $MR&D (US GAAP) 228.6 15% 226.2 19%Payments in respect of (12.5) -in-licensed and acquiredproductsDepreciation (6.1) (6.3)R&D (Non GAAP) 210.0 14% 219.9 19% Non GAAP R&D decreased by $9.9 million, or 5% in Q3 2014, following thecompletion of several large Phase 3 programs since Q3 2013 including new usesfor LDX and the effect of portfolio prioritization decisions taken during2013. These decreases were partially offset by the inclusion of programsacquired through business development in 2014. US GAAP R&D increased by $2.4 million, or 1% as compared to Q3 2013. SG&A % of % of product product Q3 2014 sales Q3 2013 sales $M $MSG&A (US GAAP) 522.9 34% 396.3 34%Intangible asset (62.9) (34.5)amortizationLegal and litigation costs (3.3) (4.7)Costs incurred inconnection with AbbVie'sterminated offer for Shire (28.4) -Depreciation (20.7) (15.9)SG&A (Non GAAP) 407.6 26% 341.2 29% Non GAAP SG&A increased by $66.4 million, or 19%. The inclusion of ViroPharmaSG&A in Q3 2014 and commercial spending in advance of anticipated productlaunches for certain products offset lower ongoing overheads following the OneShire reorganization. Non GAAP SG&A as a percentage of product sales was 3percentage points lower than Q3 2013 as we continue to see benefits from theOne Shire reorganization and the focus on operational discipline in Q3 2014. US GAAP SG&A increased by $126.6 million, or 32%, as it also includes higheramortization of intangible assets acquired with ViroPharma, and costs incurredin connection with AbbVie's terminated offer for Shire. Gain on sale of product rights For the three months to September 30, 2014 Shire recorded a netgain on sale of non-core product rights of $46.0 million (2013: $3.6 million)following the divestment of VANCOCIN, ESTRACE and EXPUTEX. The gain on sale ofproduct rights also included the gain on re-measurement of the contingentconsideration receivable relating to the divestment of DAYTRANA. Reorganization costs For the three months to September 30, 2014 Shire recordedreorganization costs of $28.2 million (Q3 2013: $12.0 million) related to theOne Shire reorganization as we continue the implementation of our newoperating structure. Integration and acquisition costs For the three months to September 30, 2014 Shire recorded integration andacquisition costs of $37.1 million, comprising a $4.9 million charge relatingto the change in fair value of contingent consideration liabilities and costsof $32.2 million primarily related to the acquisition and integration ofViroPharma. In Q3 2013 integration and acquisition costs ($18.4 million) primarily relatedto the change in fair values of contingent consideration liabilities and thecost of integrating SARcode BioSciences Inc. ("SARcode") and Premacure AB("Premacure"). Interest expense For the three months to September 30, 2014 Shire incurred interest expense of$6.8 million (Q3 2013: $9.2 million). Interest expense in Q3 2014 primarilyrelated to interest and the amortization of issue costs incurred on borrowingsto fund the ViroPharma acquisition. Interest expense in Q3 2013 principallyrelated to the coupon and amortization of costs on Shire's convertible bondswhich were fully redeemed or converted in Q4 2013. Taxation The effective rate of tax on Non GAAP income in Q3 2014 was 18% (Q32013: 20%), and on a US GAAP basis the effective rate of tax was 11% (Q3 2013:20%). The effective rate of tax in Q3 2014 on Non GAAP income fromcontinuing operations is lower than the same period in 2013 primarily due tochanges in profit mix. The effective rate of tax in Q3 2014 on US GAAP income fromcontinuing operations is lower than the same period in 2013 primarily due tochanges in profit mix and the recognition of a further tax credit of $27.7million related to the settlement of an additional position with the Canadianrevenue authorities in Q3 2014. Discontinued operations The loss from discontinued operations for the three months to September 30,2014 was $36.1 million net of tax (2013: $22.9 million) relating to costsassociated with the divestment of the DERMAGRAFT business, including a loss onre-measurement of contingent consideration receivable from Organogenesis toits fair value. FINANCIAL INFORMATION TABLE OF CONTENTS Page Unaudited US GAAP Consolidated Balance Sheets 12 Unaudited US GAAP Consolidated Statements of Income 13 Unaudited US GAAP Consolidated Statements of CashFlows 15 Selected Notes to the Unaudited US GAAP FinancialStatements(1) Earnings per share 17(2) Analysis of revenues 18 Non GAAP reconciliation 20 Unaudited US GAAP financial position as of September 30, 2014Consolidated Balance Sheets September 30, December 31, 2014 2013 $M $MASSETSCurrent assets:Cash and cash equivalents 467.7 2,239.4Restricted cash 54.5 22.2Accounts receivable, net 1,079.3 961.2Inventories 548.9 455.3Assets held for sale - 31.6Deferred tax asset 315.3 315.6Prepaid expenses and other current assets 402.4 263.0 Total current assets 2,868.1 4,288.3 Non-current assets:Investments 46.8 31.8Property, plant and equipment ("PP&E"), net 845.6 891.8Goodwill 2,373.7 624.6Other intangible assets, net 5,227.4 2,312.6Deferred tax asset 136.7 141.1Other non-current assets 42.2 32.8 Total assets 11,540.5 8,323.0 LIABILITIES AND EQUITYCurrent liabilities:Accounts payable and accrued expenses 1,725.8 1,688.4Other current liabilities 276.6 119.5 Total current liabilities 2,002.4 1,807.9 Non-current liabilities:Long term borrowings 850.0 -Deferred tax liability 1,378.2 560.6Other non-current liabilities 771.6 588.5 Total liabilities 5,002.2 2,957.0 Equity:Common stock of 5p par value; 1,000 millionshares authorized; and 598.6 million sharesissued and outstanding (2013: 1,000 millionshares authorized; and 597.5 million sharesissued and outstanding) 58.7 58.6Additional paid-in capital 4,302.0 4,186.3Treasury stock: 10.8 million shares (2013: 13.4million) (350.8) (450.6)Accumulated other comprehensive income 30.8 110.2Retained earnings 2,497.6 1,461.5 Total equity 6,538.3 5,366.0 Total liabilities and equity 11,540.5 8,323.0 Unaudited US GAAP results for the three months and nine months to September30, 2014 Consolidated Statements of Income 3 months to September 30, 9 months to September 30, 2014 2013 2014 2013 $M $M $M $MRevenues:Product sales 1,552.0 1,171.0 4,329.7 3,477.1Royalties 39.9 37.6 101.4 112.4Other revenues 5.2 4.1 14.9 18.8Total revenues 1,597.1 1,212.7 4,446.0 3,608.3 Costs and expenses:Cost of product sales 254.3 180.5 760.8 492.2R&D(1) 228.6 226.2 826.0 703.3SG&A(1) 522.9 396.3 1,449.4 1,198.0Goodwill impairment charge - - - 7.1Gain on sale of productrights (46.0) (3.6) (86.2) (14.6)Reorganization costs 28.2 12.0 123.4 47.2Integration and acquisitioncosts 37.1 18.4 155.8 39.9Total operating expenses 1,025.1 829.8 3,229.2 2,473.1 Operating income fromcontinuing operations 572.0 382.9 1,216.8 1,135.2 Interest income 3.6 0.4 22.8 1.6Interest expense (6.8) (9.2) (25.7) (27.5)Other income/(expense), net 6.8 0.7 14.8 (1.6)Total otherincome/(expense), net 3.6 (8.1) 11.9 (27.5) Income from continuingoperations before incometaxes and equity inearnings/(losses) of equitymethod investees 575.6 374.8 1,228.7 1,107.7Income taxes (61.2) (73.4) 64.7 (235.3)Equity in earnings/(losses)of equity method investees,net of taxes 1.4 (0.3) 3.8 0.6Income from continuingoperations, net of tax 515.8 301.1 1,297.2 873.0Loss from discontinuedoperations, net of taxes (36.1) (22.9) (64.0) (271.9)Net income 479.7 278.2 1,233.2 601.1 (1) R&D includes intangible asset impairment charges of $188.0 million for thenine months to September 30, 2014 (2013: $19.9 million). SG&A costs includeamortization charges of intangible assets relating to intellectual propertyrights acquired of $62.9 million for the three months to September 30, 2014(2013: $34.5 million) and $181.9 million for the nine months to September 30,2014 (2013: $106.5 million). Unaudited US GAAP results for the three months and nine months to September30, 2014 Consolidated Statements of Income (continued) 3 months to September 30, 9 months to September 30, 2014 2013 2014 2013Earnings per Ordinary Share- basicEarnings from continuingoperations 87.8c 54.9c 221.3c 158.8cLoss from discontinuedoperations (6.1c) (4.2c) (10.9c) (49.5c) Earnings per Ordinary Share- basic 81.7c 50.7c 210.4c 109.3c Earnings per ADS - basic 245.1c 152.1c 631.2c 327.9c Earnings per Ordinary Share- dilutedEarnings from continuingoperations 87.0c 52.7c 219.1c 152.5cLoss from discontinuedoperations (6.1c) (3.9c) (10.8c) (46.3c) Earnings per Ordinary Share- diluted 80.9c 48.8c 208.3c 106.2c Earnings per ADS - diluted 242.7c 146.4c 624.9c 318.6c Weighted average number ofshares: Millions Millions Millions Millions Basic 587.6 548.4 586.1 549.8Diluted 592.6 585.7 592.1 587.5 Unaudited US GAAP results for the three months and nine months to September30, 2014 Consolidated Statements of Cash Flows 3 months to September 30, 9 months to September 30, 2014 2013 2014 2013 $M $M $M $MCASH FLOWS FROM OPERATING ACTIVITIES: Net income 479.7 278.2 1,233.2 601.1Adjustments to reconcile net income to net cash provided byoperating activities: Depreciation and amortization 106.6 78.2 307.1 229.4 Share based compensation 22.6 18.8 78.3 55.2 Change in fair value of contingent consideration 4.9 14.7 26.3 28.4 Impairment of intangible assets - - 188.0 19.9 Goodwill impairment charge - - - 198.9 Write down of assets 1.0 - 14.0 8.3 Gain on sale of product rights (12.4) (3.6) (52.6) (14.6) Unwind of ViroPharma inventory fair value step-up 18.1 - 90.6 - Other, net (1.9) (2.8) 16.5 (3.9)Movement in deferred taxes 37.8 (5.1) 63.1 16.1Equity in (earnings)/losses of equity method investees (1.4) 0.3 (3.8) (0.6)Changes in operating assets and liabilities: Increase in accounts receivable (54.8) (112.6) (92.1) (215.2) (Decrease)/increase in sales deduction accrual (77.8) 68.7 28.2 108.7 (Increase)/decrease in inventory (4.1) 14.0 (15.8) (39.9) Decrease/(increase) in prepayments and other assets 22.8 (4.4) (114.7) (70.9) Increase/(decrease) in accounts payable and other liabilities 52.3 89.3 (92.8) (71.4)Returns on investment from joint venture - - - 3.2Net cash provided by operating activities(A) 593.4 433.7 1,673.5 852.7 CASH FLOWS FROM INVESTING ACTIVITIES: Movements in restricted cash (20.4) 1.0 (32.3) 0.5Purchases of subsidiary undertakings andbusinesses, net of cash acquired (86.1) - (4,104.4) (227.8)Purchases of non-current investments (19.7) (3.1) (22.8) (9.9)Purchases of PP&E (30.7) (45.3) (49.8) (110.3)Proceeds from short-term investments 1.5 - 57.8 -Proceeds from disposal of non-currentinvestments 13.3 0.9 21.3 8.6Proceeds received on sale of productrights 69.9 4.7 122.7 15.0Other, net 4.1 0.1 1.3 2.9Net cash used in investing activities(B) (68.1) (41.7) (4,006.2) (321.0) Unaudited US GAAP results for the three months and nine months to September30, 2014 Consolidated Statements of Cash Flows (continued) 3 months to September 30, 9 months to September 30, 2014 2013 2014 2013 $M $M $M $M CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving line of credit,long term and short term borrowings - - 2,310.8 -Repayment of revolving line of credit andshort term borrowings (210.2) - (1,461.8) -Repayment of debt acquired throughbusiness combinations - - (551.5) -Proceeds from ViroPharma call options - - 346.7 -Payment of dividend - - (99.6) (79.2)Payments to acquire shares by theEmployee Benefit Trust ("EBT") - - - (50.3)Payments to acquire shares under theshare buy-back program - (12.8) - (190.5)Excess tax benefit associated withexercise of stock options 8.3 3.4 37.4 9.5Contingent consideration payments (2.5) (2.5) (12.8) (11.3)Other, net (1.7) 1.7 (2.0) (5.5)Net cash (used in)/provided by financingactivities(C) (206.1) (10.2) 567.2 (327.3)Effect of foreign exchange rate changeson cash and cash equivalents (D) (5.1) 2.4 (6.2) (0.5)Net increase/(decrease) in cash and cashequivalents(A) +(B) +(C) +(D) 314.1 384.2 (1,771.7) 203.9Cash and cash equivalents at beginning ofperiod 153.6 1,301.9 2,239.4 1,482.2Cash and cash equivalents at end ofperiod 467.7 1,686.1 467.7 1,686.1 Unaudited US GAAP results for the three months and nine months to September30, 2014 Selected Notes to the Financial Statements (1) Earnings Per Share ("EPS") 3 months to September 30, 9 months to September 30, 2014 2013 2014 2013 $M $M $M $M Income from continuingoperations 515.8 301.1 1,297.2 873.0Loss from discontinuedoperations (36.1) (22.9) (64.0) (271.9) Numerator for basic EPS 479.7 278.2 1,233.2 601.1Interest on convertiblebonds, net of tax - 7.6 - 22.7 Numerator for diluted EPS 479.7 285.8 1,233.2 623.8 Weighted average number ofshares: Millions Millions Millions MillionsBasic(1) 587.6 548.4 586.1 549.8Effect of dilutive shares:Share based awards toemployees(2) 5.0 3.5 6.0 3.9Convertible bonds(3) - 33.8 - 33.8 Diluted 592.6 585.7 592.1 587.5(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 September 30, 9 months to September 30, 2014 2013 2014 2013 Millions Millions Millions MillionsShare based awards toemployees(1) 0.3 0.5 0.3 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 September 30, 2014 Selected Notes to the Financial Statements (2) Analysis of revenues 3 months to September 30, 2014 2013 2014 2014 % % of total $M $M change revenueNet product sales:VYVANSE 354.9 299.2 19% 22%LIALDA/MEZAVANT 176.6 141.9 24% 11%ELAPRASE 168.8 129.1 31% 11%CINRYZE 145.1 - n/a 9%REPLAGAL 135.9 108.5 25% 9%FIRAZYR 98.4 62.6 57% 6%INTUNIV 96.7 80.8 20% 6%VPRIV 96.4 87.8 10% 6%ADDERALL XR 95.3 81.4 17% 6%PENTASA 78.3 70.6 11% 5%FOSRENOL 48.1 51.9 -7% 3%XAGRID 27.1 24.2 12% 2%Other product sales 30.4 33.0 -8% 2%Total product sales 1,552.0 1,171.0 33% 97% Royalties:FOSRENOL 14.6 13.8 6%