Supplementary Reporting

2nd Mar 2010 15:30

Supplementary reporting announcement

March 2, 2010 - Shire plc , the global specialty biopharmaceutical company, in accordance with the requirements of Rule 4.1 of the Disclosure and Transparency Rules of the UK Financial Services Authority, releases as an Appendix to this announcement a business review for the year ended December 31, 2009, a description of principal risks and uncertainties affecting Shire and the directors' responsibility statement.

Shire has previously announced un-audited full year results for the year ended December 31, 2009, prepared in accordance with US generally accepted accounting principles, on February 19, 2010.

Tony GuthrieDeputy Company Secretary

For further information please contact:

Investor Relations Cl©a Rosenfeld (Rest of the World) +44 1256 894 160 Eric Rojas (North America) +1 617 551 9715Notes to editorsSHIRE PLC

Shire's strategic goal is to become the leading specialty biopharmaceutical company that focuses on meeting the needs of the specialist physician. Shire focuses its business on attention deficit hyperactivity disorder (ADHD), human genetic therapies (HGT) and gastrointestinal (GI) diseases as well as opportunities in other therapeutic areas to the extent they arise through acquisitions. Shire's in-licensing, merger and acquisition efforts are focused on products in specialist markets with strong intellectual property protection and global rights. Shire believes that a carefully selected and balanced portfolio of products with strategically aligned and relatively small-scale sales forces will deliver strong results.

For further information on Shire, please visit the Company's website: www.shire.com.

THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Statements included herein that are not historical facts are forward-looking statements. Such forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, Shire's results could be materially adversely affected. The risks and uncertainties include, but are not limited to, risks associated with: the inherent uncertainty of research, development, approval, reimbursement, manufacturing and commercialization of the Shire's Specialty Pharmaceutical and Human Genetic Therapies products, as well as the ability to secure and integrate new products for commercialization and/or development; government regulation of Shire's products; Shire's ability to manufacture its products in sufficient quantities to meet demand; the impact of competitive therapies on Shire's products; Shire's ability to register, maintain and enforce patents and other intellectual property rights relating to its products; Shire's ability to obtain and maintain government and other third-party reimbursement for its products; and other risks and uncertainties detailed from time to time in Shire's filings with the Securities and Exchange Commission.

APPENDIXCONTENTS PAGE1. BUSINESS REVIEW- Overview 4- Markets 5- Research and development (`R&D') 5- Products under development 6 - Patents and market exclusivity 8- Business development 9- Results of operations for the year to December 31, 2009 9- Liquidity and capital resources 15- Chief Executive Officer's review 16- Other developments 19

2. PRINCIPAL RISKS AND UNCERTAINTIES

- Risk factors related to Shire's business 20

- Risk factors related to the pharmaceutical industry in general 24

3. DIRECTORS' RESPONSIBILITY STATEMENT

- Directors' responsibility statement 271. BUSINESS REVIEWOverview

Shire plc (the `Company') and its subsidiaries (collectively referred to as `Shire' or the `Group') has the mission to be the most valuable specialty biopharmaceutical company in the world that focuses on enabling people with life altering conditions to lead better lives. Shire focuses its business on Attention Deficit Hyperactivity Disorder (`ADHD'), Human Genetic Therapies (`HGT') and gastrointestinal (`GI') diseases as well as opportunities in other therapeutic areas to the extent they arise through acquisitions. Shire's in-licensing, merger and acquisition efforts are focused on products in specialist markets with strong intellectual property protection and global rights. Shire believes that a carefully selected and balanced portfolio of products with strategically aligned and relatively small-scale sales forces will deliver strong results.

Substantially all of the Group's revenues, expenditures and net assets are attributable to the development, manufacture, sale and distribution of pharmaceutical products within two reporting segments: Specialty Pharmaceuticals and HGT. The Group also earns royalties (where Shire has out-licensed products to third parties) which are recorded as revenues.

Revenues are derived primarily from two sources - sales of the Group's own products and royalties:

- 90% (2008: 91%) of total revenues are derived from product sales, of which 79% (2008: 83%) are within Specialty Pharmaceuticals and 21% (2008: 17%) are within HGT; and

- 9% of total revenues are derived from royalties (2008: 8%).

Shire's strategic objectives are set using a balanced scorecard approach. Strategic and operational objectives are set at the corporate level and cascaded to the segment (Specialty Pharmaceuticals / HGT), therapeutic area and functional levels so that these objectives are aligned with the corporate objectives. The Group therefore takes a fully integrated approach to strategic management and uses key performance indicators (`KPIs') to measure the achievement of these objectives. For 2009, Shire's corporate KPIs included certain financial and non financial measures.

The markets in which the Group conducts its business are highly competitive and highly regulated. The health care industry is experiencing:

- pressure from governments and healthcare providers to keep prices low while increasing access to drugs;

- increased R&D costs as development programs are typically larger and take longer to get approval from regulators;

- challenges to existing patents from generic manufacturers;

- governments and healthcare systems favoring earlier entry of low cost generic drugs; and

- higher marketing costs due to competition for market share.

Shire's strategy to become the leading specialty biopharmaceutical company has been developed to address these industry-wide competitive pressures. This strategy has resulted in a series of initiatives in the following areas:

Markets

Historically, Shire's portfolio of approved products has been heavily weighted towards the North American market. The acquisition in 2005 of TKT (and the consequent establishment of our HGT business) and the acquisition of EQUASYM in 2009 (which facilitated immediate access to the European ADHD market) provided Shire with the platforms to increase its presence in Europe and the rest of the world (`RoW'), thereby working towards diversifying the risk associated with being reliant on one geographic market. In 2009 the HGT business derived more than 75% of its revenues from outside of the US. In addition to the marketed products and products in development obtained through the acquisition of TKT (ELAPRASE, REPLAGAL and VPRIV), Shire has made significant progress on a path to geographic diversification with additional development and commercialization activities in 2009, including:

- continued roll-out of ELAPRASE in certain Latin American and RoW countries;

- continued roll-out of MEZAVANT, FOSRENOL and FIRAZYR in Europe; and

- the entering into a licensing arrangement for LIALDA/MEZAVANT in Japan.

Shire's long-term mission is to increase the proportion of its product sales from outside of the US and outside of the US, UK, Germany, France, Italy, Spain and Canada by 2015. Shire has late stage development activities ongoing which are expected to further supplement the diversification of revenues in the future, including:

- VYVANSE launches in Canada and Latin American countries and the registration program for approval in the EU;

- VPRIV launches in the EU and certain Latin American countries;

- the continued roll out of FIRAZYR in certain European and Latin American countries;

- LIALDA/MEZAVANT diverticulitis registration program; and

- the continued roll-out of FOSRENOL, LIALDA/MEZAVANT and EQUASYM in EU and RoW countries.

R&D

Over the last five years Shire has focused its R&D efforts on products in its core therapeutic areas, which meet the needs of the specialist physician, and has concentrated its resources on obtaining regulatory approval for later-stage pipeline products within these core therapeutic areas.

Evidence of the successful execution of this strategy can be seen from the progression of the Group's development pipeline over the last five years. Since January 2005, several products have received regulatory approval; in the US, DAYTRANA and ELAPRASE in 2006, LIALDA and VYVANSE in 2007, and INTUNIV in 2009; in the EU, FOSRENOL in 2005, ELAPRASE and MEZAVANT in 2007. The Group had VPRIV in registration in the US and EU and filed a Biologics License Application (`BLA') for REPLAGAL in the US at December 31, 2009. In February 2010, Shire withdrew its December BLA filing for REPLAGAL and at the suggestion of the US Food and Drug Administration (`FDA'), requested and received Fast Track designation. Shire immediately initiated a rolling BLA submission in February.

Shire's strategy is focused on the development of product candidates that have a lower risk profile. R&D costs in 2010 will include expenditure on several pre-clinical to Phase 3 studies for products in development and Phase 3(b) and Phase 4 studies to support recently launched products in the Specialty Pharmaceuticals and HGT businesses, together with the development of new projects in both the Specialty Pharmaceuticals and HGT businesses.

Products under development

At December 31, 2009 the following products were under development and the following section outlines their development status at February 26, 2010:

Specialty PharmaceuticalsTreatments for ADHDVYVANSE for ADHD in EU

VYVANSE for the treatment of ADHD in children aged 6 to 17 in the EU is in Phase 3 development. Shire anticipates submission of the regulatory filing for VYVANSE in Europe in 2011.

INTUNIV for use in combination with other ADHD treatments

Phase 3 trials in the US are ongoing to support the efficacy and safety of INTUNIV when combined with other approved ADHD treatments.

Treatments for GI diseases

LIALDA for the maintenance of remission in ulcerative colitis in the US

Phase 3 trials investigating the use of the product to maintain remission in patients who have ulcerative colitis were initiated in 2006 for the US market and continued through 2009. The product was indicated for the maintenance of remission in patients who have ulcerative colitis on approval in the EU.

LIALDA/MEZAVANT for the treatment of diverticulitis

Diverticulosis is among the most common diseases in developed countries and manifests as weaknesses or out-pouches of the bowel wall primarily in elderly populations. Approximately 15-20% of people with diverticulosis go on to develop diverticulitis which is an acute inflammation, infection and micro or macro-perforation of these out-pouches. The current standard of care requires treatment with antibiotics and depending on the frequency or severity of attacks, may require surgery. LIALDA/MEZAVANT is being investigated as a treatment to prevent recurrent attacks of diverticulitis.

Phase 3 worldwide clinical trials investigating the use of the product for the treatment of diverticulitis were initiated in 2007 and are ongoing.

Treatments for diseases in other therapeutic areas

FOSRENOL for the treatment of pre-dialysis Chronic Kidney Disease (`CKD')

Shire is continuing to explore the regulatory pathway required to secure a label extension for FOSRENOL to treat hyperphosphataemia in pre-dialysis CKD in the US.

JUVISTA for the improvement of scar appearance

Renovo initiated its first pivotal European Phase 3 trial in scar revision in the fourth quarter of 2008 to support the filing of a European regulatory dossier. If the outcome from Renovo's multi-center, EU Phase 3 study is suitably positive, the data will be used to inform the strategy and design of Shire's US development plan.

VYVANSE for the treatment of non ADHD indications in adults

Shire is conducting Phase 2 pilot clinical trials to assess the efficacy and safety of VYVANSE as adjunctive therapy in depression, for the treatment of negative symptoms and cognitive impairment in schizophrenia, and for the treatment of cognitive impairment in depression.

SPD 535 for the treatment of arteriovenous grafts in hemodialysis patients

SPD 535 is in development as a novel molecule with platelet lowering ability and without phosphodiesterase type III inhibition. The initial proof-of-concept program will target prevention of thrombotic complications associated with arteriovenous grafts in hemodialysis patients. Phase 1 development was initiated in the third quarter of 2009.

Projects in pre-clinical development

A number of additional projects are underway in the early stages of pre-clinical development for the Specialty Pharmaceuticals area, including potential programs leveraging `CarrierWave' technology primarily focused in the areas of pain and ADHD. More data on these programs is expected in the second half of 2010.

Human Genetic TherapiesTreatments for Angioedema

FIRAZYR in Hereditary angioedema (`HAE') in the US

Prior to its acquisition by Shire, Jerini AG (`Jerini') received a not approvable letter for FIRAZYR for use in the US from the FDA in April 2008. In December 2008 Shire met with the FDA to discuss the development of FIRAZYR. It was agreed that an additional clinical study would be required before approval could be considered and that a complete response to the not approvable letter would be filed after completion of this study.

In June 2009 Shire initiated a Phase 3 study in patients with acute attacks of HAE, known as the FAST-3 trial, which is designed to support filing of a New Drug Application (`NDA') for FIRAZYR in the US. This trial is ongoing.

Enzyme Replacement Therapy (`ERT')

REPLAGAL - for the treatment of Fabry disease

Shire has worked closely with the FDA to establish an early access program in response to the ongoing shortage of the currently marketed treatment for Fabry disease in the US. REPLAGAL is currently available to US Fabry patients under an FDA-approved treatment protocol, and the Group is also supporting emergency Investigational New Drug ('IND') requests. REPLAGAL first received marketing authorization in the EU in 2001 and is approved for the treatment of Fabry disease in 45 countries.

On December 22, 2009, Shire submitted a BLA with the FDA for REPLAGAL, its enzyme replacement therapy for Fabry disease. In February 2010, the FDA requested additional pharmacokinetic comparability data. As a result, Shire withdrew its December BLA filing, and, at the suggestion of the FDA, requested and received Fast Track designation. Shire immediately initiated a rolling BLA submission in February.

VPRIV - for the treatment of Type 1 Gaucher Disease

VPRIV is an enzyme replacement therapy being developed for the treatment of Type 1 Gaucher disease. Gaucher disease is the most common of the inherited lysosomal storage diseases and is caused by a deficiency of the enzyme glucocerebrosidase.

On September 1, 2009 Shire completed its NDA submission to the FDA for VPRIV. On November 4, 2009 Shire announced that the FDA granted Priority Review of this application, and issued an action date of February 28, 2010. On November 24, 2009 Shire submitted a European Marketing Authorization Application (`MAA') to the European Medicines Agency (`EMEA'). The submission has been granted accelerated review by EMEA.

VPRIV is available ahead of its commercial launch in the US via an FDA-accepted treatment protocol and elsewhere on a pre-approval basis using the fastest mechanisms available in each jurisdiction, in response to the ongoing shortage of a currently marketed treatment for Gaucher disease.

HGT-1111 and HGT-1110 - for the treatment of Metachromatic Leukodystrophy ('MLD')

MLD is a lysosomal storage disorder that results from a deficiency in the enzyme arylsulfatase-A. HGT-1111 has completed a Phase 1b clinical trial in 12 MLD patients in Europe and an extension to this study is ongoing. Based on additional long-term clinical data from the ongoing Phase 1b study in MLD, in the first quarter of 2010, Shire decided to suspend further development of an intravenous formulation of arylsulfatase-A derived from Chinese Hamster Ovary (`CHO') cells, also known as HGT-1111. Development of a formulation of HGT-1110, expressed from Shire's human cell platform and suitable for direct delivery to the central nervous system (`CNS'), is ongoing, and preclinical studies are planned for 2010. The Shire platform for direct delivery of proteins to the CNS was advanced in the first quarter of 2010 with the initiation of intrathecal delivery of idursulfase in the Phase 1/2 study in Hunter syndrome.

HGT-2310 - Hunter syndrome with central nervous system symptoms, idursulfase-IT (intrathecal delivery)

HGT 2310 is in development as an enzyme replacement therapy delivered intrathecally for Hunter syndrome for patients with central nervous system symptoms. The Group initiated a Phase 1/2 clinical trial in the first quarter of 2010. This product has been granted orphan designation in the US.

HGT-1410 for Sanfilippo Syndrome (Mucopolysaccharidosis IIIA)

HGT-1410 is in development as an enzyme replacement therapy for the treatment of Sanfilippo Syndrome (Mucopolysaccharidosis IIIA), a lysosomal storage disorder. Sanfilippo is an autosomal recessive genetic disease caused by a deficiency of heparan-N-sulfatase, an enzyme that degrades heparan sulfate. The accumulation of heparan sulfate in tissues causes a neurodegenerative disorder in children in which the central nervous system is primarily affected. The product has been granted orphan drug designation in the US and in the EU. The Group plans to initiate a Phase 1 clinical trial in mid-2010.

HGT-2610 for the treatment of Globoid Cell Leukodystrophy (`GLD')

HGT 2610 is an enzyme replacement therapy for the treatment of GLD, a lysosomal storage disorder. GLD is a rare, inherited lysosomal disorder resulting from a deficiency in the enzyme galactosylcerebrosidase. This neurodegenerative disease primarily affects infants, but can occur in adolescents and adults. GLD is caused by degradation of the myelin sheath that normally covers nerve fibers, which leads to rapid degeneration of mental and motor function in these patients. This program is in early development and pre-clinical studies.

Early Research Products

A number of additional projects are underway in the early stages of development for the HGT business area.

Development projects discontinued during 2009

DAYTRANA for ADHD in EU and Canada

In March 2009 and November 2009, Shire withdrew the MAA and Canadian New Drug Submission (`NDS'), respectively for DAYTRANA for the treatment of ADHD. The withdrawal of the European MAA and Canadian NDS does not impact Shire's commitment to DAYTRANA in the US where the product has been used as a pediatric treatment for ADHD since 2006.

SPD 550 for the treatment of Celiac disease

In December 2007 Shire acquired the worldwide rights to SPD550 in markets outside of the US and Japan from Alba Therapeutics Corporation (`Alba'). Shire terminated the collaboration agreement with effect from November 15, 2009 and Shire returned all rights to Alba.

Pharmacological Chaperone Technology

In November 2007 Shire entered into a license agreement with Amicus Therapeutics, Inc. (`Amicus') under which it received the rights to three compounds, PLICERA (HGT-3410) for the treatment of Gaucher disease, AMIGAL (HGT-3310) for the treatment Fabry disease and AT2220 (HGT-3510) for the treatment of Pompe disease, in markets outside the US. On October 29, 2009 Shire and Amicus mutually agreed to terminate the collaboration, with all rights returned to Amicus.

Patents and market exclusivity

The loss or expiration of patent protection or regulatory exclusivity with respect to any of the Group's major products could have a material adverse effect on the Group's revenues, financial condition and results of operations as generic manufacturers may enter the market. Generic manufacturers often do not need to complete extensive clinical studies when they seek registration of a copy product and accordingly, they are generally able to sell the Group's drugs at a much lower price.

As expected, in 2009 Teva Pharmaceutical Industries, Ltd. (`Teva') and Impax Laboratories, Inc. (`Impax') commenced commercial shipments of their authorized generic versions of ADDERALL XR. During the year to December 31, 2009 the Group's sales of ADDERALL XR declined by 43% to $626.5 million, representing 21% of total revenues in 2009 (2008: 36%). In October 2005 the Group filed a Citizen Petition with the FDA requesting that the FDA require more rigorous bioequivalence testing or additional clinical testing for generic or follow-on drug products that reference ADDERALL XR before they can be approved. The Group received correspondence from the FDA in April 2006 stating that, due to the complex issues raised, which require extensive review and analysis by the FDA's officials, a decision cannot yet be reached by the FDA. The FDA has not yet reached a decision on this Citizen Petition and did not provide any guidance as to when that decision may be reached.

Shire is engaged in various legal proceedings with generic manufacturers with respect to its FOSRENOL and CARBATROL patents, as well as the patents for certain other products. During 2009 Shire settled certain legal proceedings relating to ADDERALL XR and CARBATROL. Shire has also intervened in a lawsuit brought by Actavis Elizabeth LLC against the FDA concerning FDA's decision to grant VYVANSE new chemical entity regulatory exclusivity.

Business development

As a result of the issues associated with the loss or expiry of patent protection or loss of data exclusivity, Shire seeks to focus its business development activity on the acquisition and in-licensing of products and projects which have the benefit of long-term patent protection and/or data exclusivity.

During 2009, in addition to acquiring the worldwide rights (excluding the US, Canada and Barbados) to EQUASYM IR and XL from UCB Pharma Limited (`UCB') and entering into a research collaboration with Santaris Pharma A/S ('Santaris') for the development of its Locked Nucleic Acid (`LNA') drug platform technology, Shire also acquired the remaining interests in Jerini AG (having acquired more than 98% of the voting interests of Jerini in 2008). In 2008 Shire also acquired the global rights to METAZYM, a clinical candidate arylsulfatase-A, from Zymenex A/S. In 2007 the Group acquired New River Pharmaceuticals, Inc. (`New River') and through the New River acquisition obtained control of the commercialization of VYVANSE.

Results of operations for the year to December 31, 2009

Key financial highlights for the year to December 31, 2009 are as follows:

- product sales excluding ADDERALL XR increased by 25% to $2,067.2 million (2008: $1,652.5 million) following continued strong growth from VYVANSE, LIALDA/MEZAVANT, ELAPRASE and REPLAGAL;

- product sales including ADDERALL XR decreased by 2% to $2,693.7 million (2008: $2,754.2 million) due to the expected decline in ADDERALL XR products sales following the launch of authorized generic versions by Teva and Impax, with the strong performance in Shire's other products offsetting the decrease;

- total revenues decreased marginally to $3,007.7 million in 2009 (2008: $3,022.2 million) as the increase in product sales excluding ADDERALL XR and royalty income received on Teva and Impax's sales of authorized generic ADDERALL XR offset the decline in ADDERALL XR product sales;

- operating income in 2009 increased by 51% to $620.2 million, (2008: $412.0 million); and

- net income attributable to Shire plc increased by $335.6 million to $491.6 million (2008: $156.0 million) and diluted earnings per Ordinary Share increased to 89.7c in 2009 (2008: 28.6c).

Further detail on the results of operations for the years to December 31, 2009 and 2008 is provided below:

Total revenues

The following table provides an analysis of the Group's total revenues bysource:Year to December 31, 2009 2008 Change $'M $'M % Product sales 2,693.7 2,754.2 -2Royalties 292.5 245.5 +19Other revenues 21.5 22.5 -4 Total 3,007.7 3,022.2 - Product sales Product Non GAAP US Exit sales CER prescription marketYear to December

31, 2009 2008 growth growth growth(1) share(1) $'M $'M % % % % Specialty

Pharmaceuticals

ADHDVYVANSE 504.7 318.9 +58 +58 +65 13DAYTRANA 71.0 78.7 -10 -10 -13 1EQUASYM 22.8 - n/a n/a n/a n/a(2)INTUNIV 5.4 - n/a n/a n/a 1(3)ADDERALL XR 626.5 1,101.7 -43 -43 -42 8 GIPENTASA 214.8 185.5 +16 +16 -2 16LIALDA / MEZAVANT 235.9 140.4 +68 +69 +43 18 General ProductsFOSRENOL 184.4 155.4 +19 +23 -2 8CALCICHEW 43.7 52.8 -17 -3 n/a n/a(3)CARBATROL 82.4 75.9 +9 +9 -4 55REMINYL/REMINYL XL 42.4 34.4 +23 +42 n/a n/a(3)XAGRID 84.8 78.7 +8 +16 n/a n/a(2)Other productsales 19.4 50.1 -61 -59 n/a n/a(3) 2,138.2 2,272.5 -6 Human GeneticTherapiesELAPRASE 353.1 305.1 +16 +20 n/a n/a(3)REPLAGAL 193.8 176.1 +10 +16 n/a n/a(2)FIRAZYR 6.1 0.5 n/a n/a n/a n/a(2)VPRIV(4) 2.5 - n/a n/a n/a n/a(2) 555.5 481.7 +15 Total productsales 2,693.7 2,754.2 -2

(1) US prescription growth and market share data provided by IMS Health (`IMS') National Prescription Audit. Exit market share represents the US market share in the last week of December 2009.

(2) Not sold in the US or awaiting approval in the US.

(3) IMS Data not available.

(4) Not approved at December 31, 2009. Sales achieved under early access programs.

The Group's management analyses product sales growth for certain products sold in markets outside of the US on a constant exchange rate (`CER') basis, so that product sales growth can be considered excluding movements in foreign exchange rates. Product sales growth on a CER basis is a non GAAP financial measure, computed by comparing 2009 product sales restated using 2008 average foreign exchange rates to 2008 actual product sales. Average exchange rates for the year to December 31, 2009 were $1.57:£1.00 and $1.39:€1.00 (2008: $1.85:£1.00 and $1.47:€1.00).

Specialty Pharmaceuticals

VYVANSE - ADHD

The increase in VYVANSE product sales was driven by higher US prescription demand in 2009 compared to 2008, 9% growth in the US ADHD market and price increases. Product sales growth was lower than prescription growth due to lower stocking in 2009 compared to 2008.

INTUNIV - ADHD

INTUNIV was launched in the US in November 2009. In line with Shire's revenue recognition policy for launch shipments, initial stocking shipments have been deferred and are being recognized into revenue in line with end-user prescription demand. At December 31, 2009 deferred revenues on the balance sheet represented gross sales of $38.8 million.

ADDERALL XR - ADHD

The launch by Teva and Impax of their authorized generic versions of ADDERALL XR led to the expected decline in 2009 of branded ADDERALL XR prescription demand, and resulted in higher US sales deductions in 2009 compared to 2008. These factors more than offset the positive impacts of price increases taken since the fourth quarter of 2008, and the inclusion in product sales of shipments of authorized generic ADDERALL XR to Teva and Impax in 2009.

Sales deductions represented 47% of branded ADDERALL XR gross sales in the year to December 31, 2009 compared to 25% in the same period in 2008, following higher Medicaid and Managed Care rebates subsequent to the authorized generic launches.

There are potentially different interpretations as to how shipments of authorized generic ADDERALL XR to Teva and Impax should be included in the Medicaid rebate calculation pursuant to Medicaid rebate legislation, including the Deficit Reduction Act of 2005 (`Medicaid rebate legislation'). As a result more than one unit rebate amount (`URA') is calculable for the purpose of determining the Group's Medicaid rebate liability to States after the authorized generic launch. During 2009 the Group highlighted the different interpretations to the Centers for Medicare and Medicaid Services (`CMS') and submitted data to the CMS for the purpose of computing the URA, based on the Group's reasonable interpretation of the Medicaid rebate legislation and related guidance. The State Medicaid agencies have invoiced the Group for Medicaid rebates, and the Group has paid these Medicaid rebate invoices, based on this URA. Despite this CMS has the ability to subsequently challenge the Group's interpretation of the Medicaid rebate legislation, and require an alternative interpretation to be applied (both retrospectively and prospectively), which could result in a significantly higher Medicaid liability.

Throughout 2009 the Group's management has recorded its accrual for Medicaid rebates based on its best estimate of the rebate payable. For the first three quarters of 2009, the Group's management based this best estimate on an amount that the Group could pay were CMS to challenge the Group's interpretation and require an alternative interpretation of the Medicaid rebate legislation to be applied. In the fourth quarter of 2009, the Group's management lowered its best estimate of the Medicaid rebate payable down to be consistent with (i) the Group's interpretation of the Medicaid rebate legislation, (ii) the Group's repeated and consistent submission of price reporting to CMS using the Group's interpretation of the Medicaid rebate legislation, (iii) CMS calculating the URA based on that interpretation, (iv) States submitting Medicaid rebate invoices using this URA and (v) Shire paying these invoices. This change of estimate increased ADDERALL XR product sales by $97.7 million in the fourth quarter of 2009 (of which $73.6 million related to ADDERALL XR product sales recognized in the first three quarters of 2009).

In determining its best estimate of the Medicaid rebate liability at December 31, 2009 the Group's management has considered a number of factors taken in combination (including the receipt of a further quarter's invoices from the States with a URA based on the Group's interpretation of the Medicaid rebate legislation and related guidance, and the Group's likely response were CMS to employ an alternative interpretation of the Medicaid rebate legislation). Any future change in the Group's interpretation which results in a change of estimate could significantly decrease sales of ADDERALL XR in the period of any such change in estimate.

The Group strongly believes that its interpretation of the Medicaid rebate legislation is reasonable and correct. However, CMS could disagree with the Group's interpretation, and require the Group to apply an alternative interpretation of the Medicaid rebate legislation and pay up to $210 million above the recorded liability. This would represent a URA substantially in excess of the unit sales price of ADDERALL XR and accordingly be in excess of the approximate amount of the full cost to the States of reimbursement for Medicaid prescriptions of ADDERALL XR. Should CMS take such an approach, the Group could seek to limit any additional payments to a level approximating the full, un-rebated cost to the States of ADDERALL XR, or $98 million above the recorded liability. Further, the Group believes it has a strong legal basis supporting its interpretation of the Medicaid rebate legislation, and that there would be a strong basis to initiate litigation to recover any amount paid in excess of its recorded liability. The result of any such litigation cannot be predicted and could result in additional rebate liability above the Group's current best estimate.

LIALDA/MEZAVANT - Ulcerative colitis

Strong product sales of LIALDA/MEZAVANT continued in the year to December 31, 2009 driven by an increase in market share over 2008, growth in the US oral mesalamine market and price increases taken during 2009.

PENTASA - Ulcerative colitis

Product sales of PENTASA continued to grow despite a decrease in US prescription demand in 2009 compared to 2008 due to the impact of price increases taken during 2009.

FOSRENOL - Hyperphosphatemia

Product sales increased as FOSRENOL entered new countries and grew in existing markets outside the US. In the US, FOSRENOL sales grew despite lower prescriptions due to a price increase in 2009.

Human Genetic Therapies

ELAPRASE - Hunter syndrome

The growth in sales of ELAPRASE was driven by increased volumes across all regions where ELAPRASE is sold. On a non GAAP CER basis sales grew by 20% (66% of ELAPRASE sales are made outside of the US).

REPLAGAL - Fabry disease

The growth in REPLAGAL product sales in 2009 over 2008 was driven by a significant increase in demand in the fourth quarter of 2009 due to an acceleration of patients switching to REPLAGAL in the EU, attributable in part to supply shortages of a competitor product. Sales increased 16% on a non GAAP CER basis (REPLAGAL is sold primarily in Euros and Pounds sterling).

Royalties

Royalty revenue increased by 19% to $292.5 million for the year to December31, 2009 (2008: $245.5 million). The following table provides an analysis ofShire's royalty income:Year to December 31, 2009 2008 Change Non GAAP CER $'M $'M % % 3TC and ZEFFIX 164.0 180.5 -9 -6ADDERALL XR 68.0 - n/a n/aOther 60.5 65.0 -7 -3 Total 292.5 245.5 19 22

3TC (HIV(1) infection and AIDS(2)) and ZEFFIX (Chronic hepatitis B infection)

Shire receives royalties from GSK on worldwide 3TC and ZEFFIX sales which decreased mainly due to competition from other HIV and hepatitis B treatments.

(1) Human Immunodeficiency Virus (`HIV'); (2) Acquired Immunodeficiency Syndrome.

Generic drug companies have filed Abbreviated New Drug applications (`ANDAs') seeking approval for COMBIVIR in the US. GSK has filed lawsuits against both Teva and Lupin Ltd. (`Lupin'), each of whom have filed ANDAs and Paragraph IV certifications for generic versions of COMBIVIR. The lawsuit against Lupin has been stayed pending resolution of the Teva lawsuit. Neither Teva nor Lupin have challenged the patents licensed by Shire to GSK. The thirty month stay of approval for Teva's ANDA expires in March 2010. No trial date has been set.

ADDERALL XR - ADHD

Royalties were received on Teva's sales of an authorized generic version of ADDERALL XR between April 2009 and September 2009, and on Impax's sales of an authorized generic version of ADDERALL XR from October 2009.

Other

Other royalties are received primarily on worldwide (excluding UK and Republic of Ireland) sales of REMINYL and REMINYL XL (known as RAZADYNE and RAZADYNE ER in the US). Royalties on sales of these products decreased in the year to December 31, 2009 to $47.7 million (2008: $63.5 million) due to generic competition in the US from August 2008.

Cost of product sales

Cost of product sales decreased to $388.0 million for the year to December 31, 2009 (14% of product sales), down from $408.0 million in the corresponding period in 2008 (2008: 15% of product sales). Cost of product sales in the year to December 31, 2008 included charges relating to DYNEPO exit costs of $48.8 million (2% of product sales). Excluding this item, cost of product sales as a percentage of product sales in 2009 compared to 2008 has increased by 1% to 14%. This increase primarily resulted from changes in product mix following the launch by Teva and Impax of their authorized generic versions of ADDERALL XR in 2009. Higher sales deductions on Shire's sales of branded ADDERALL XR, together with lower margin sales of the authorized generic version of ADDERALL XR to Teva and Impax have both depressed gross margins in 2009.

For the year to December 31, 2009 cost of product sales included depreciation of $21.8 million (2008: $16.2 million). Depreciation charged in 2009 is higher than 2008 due to accelerated depreciation of $12.0 million in 2009 following a change in the estimate of the useful lives of the property, plant and equipment at Shire's Owings Mills facility as a result of the anticipated closure of the facility in 2011.

Research and development (`R&D')

R&D expenditure increased by 29% to $638.3 million in the year to December 31, 2009 (24% of product sales), up from $494.3 million in the corresponding period in 2008 (18% of product sales). R&D for the year to December 31, 2009 included a charge of $36.9 million (1% of product sales) relating to the amendment of an INTUNIV in-license agreement and costs of $62.9 million (2% of product sales) following the agreement with Duramed Pharmaceuticals Inc. (`Duramed') to terminate the Women's Health development agreement. R&D in the year to December 31, 2008 included costs of $6.5 million for DYNEPO exit costs. Excluding these items, R&D increased in the year to December 31, 2009 compared to the same period in 2008 due to continued investment in R&D programs, including the acceleration of investment in VPRIV and REPLAGAL in the US, and the inclusion within R&D of an upfront payment of $6.5 million to Santaris for technology access and R&D funding.

For the year to December 31, 2009 R&D included depreciation of $15.5 million (2008: $12.5 million).

Selling, general and administrative ('SG&A')

SG&A expenses decreased to $1,342.6 million (50% of product sales) for the year to December 31, 2009 from $1,455.2 million (53% of product sales) in the corresponding period in 2008. The decrease was due to the Group's continued focus on cost management, and lower intangible asset impairment charges in the year to December 31, 2009 compared to the same period in 2008. SG&A in the year to December 31, 2009 includes intangible asset amortization of $136.9 million (2008: $126.2 million), the increase resulting from a full year amortization of the FIRAZYR intangible asset. Intangible asset impairment charges in the year to December 31, 2009 were $nil (2008: $97.1 million). Impairment charges in 2008 included $94.6 million related to DYNEPO which the Group ceased to commercialize. Depreciation included in SG&A was $67.7 million in 2009 (2008: $48.5 million).

Gain on sale of product rights

For the year to December 31, 2009 Shire recorded gains of $6.3 million (2008: $20.7 million) arising from the sale of non-core products to Laboratorios Almirall S.A. (`Almirall') in 2007. These gains had been deferred since 2007 pending obtaining the relevant consents to transfer certain assets.

In-process R&D (`IPR&D') charge

During the year to December 31, 2009 the Group recorded an IPR&D charge of $1.6 million (2008: $128.1 million), in respect of FIRAZYR in markets outside of the EU which, have not been approved by the relevant regulatory authorities. Also included in IPR&D in 2008 was a charge of $135.0 million relating to the acquisition of METAZYM from Zymenex.

The IPR&D charge in respect of FIRAZYR relates to the US ($64.9 million) and the RoW ($64.8 million) markets. In the US FIRAZYR received a not approvable letter from the FDA in April 2008, and in certain RoW territories it has not been approved by the regulatory authorities.

METAZYM (HGT-1111) has completed a Phase 1b clinical trial in 12 MLD patients in Europe and an extension to this study is ongoing. Based on additional long-term clinical data from the ongoing Phase 1b study in MLD, in the first quarter of 2010 Shire decided to suspend further development of an intravenous formulation of HGT-1111.

Reorganization costs

For the year to December 31, 2009 Shire recorded reorganization costs of $12.7 million (2008: $nil) relating to the transfer of manufacturing from its Owings Mills facility.

Integration and acquisition costs

For the year to December 31, 2009 Shire recorded integration and acquisition costs of $10.6 million (2008: $10.3 million) primarily relating to the integration of Jerini.

Interest income

For the year to December 31, 2009 Shire received interest income of $1.9 million (2008: $25.5 million), primarily earned on cash and cash equivalents. Interest income for the year to December 31, 2009 is lower than the same period in 2008 due to significantly lower average interest rates in 2009 compared to 2008 and lower average cash and cash equivalent balances.

Interest expense

For the year to December 31, 2009 the Group incurred interest expense of $39.8 million (2008: $139.0 million). Interest expense in 2009 primarily related to interest expense on the Group's convertible bond totaling $33.3 million (2008: $33.3 million). Interest expense in 2008 was higher than 2009 due to interest expense of $87.3 million recorded in respect of the TKT appraisal rights litigation, of which $73.0 million was additional interest arising from the settlement of the litigation in November 2008.

Other income/(expense), net

For the year to December 31, 2009 the Group recognized Other income, net of $60.7 million. Other income in 2009 includes a gain of $55.2 million on disposal of the Group's investment in Virochem Pharma Inc. (`Virochem') to Vertex Pharmaceuticals Inc. (`Vertex') in a cash and stock transaction. Shire received total consideration of $19.2 million in cash and two million Vertex shares (valued at $50.8 million at the date these shares were acquired). Other income, net in 2009 also includes a gain of $5.7 million on the substantial modification of a property lease.

For the year ended December 31, 2008, the Group recognized Other expenses, net of $32.9 million. Other expenses, net includes other-than-temporary impairment charges of $58.0 million. Impairment charges in 2008 include $44.3 million relating to the Group's available-for-sale investment in Renovo Group plc. Offsetting this in 2008 is a gain of $9.4 million from the disposal of the Group's available-for-sale investment in Questcor Pharmaceutical Inc. (`Questor') for cash consideration.

Taxation

In the year to December 31, 2009 the effective tax rate was 22% (2008: 37%). Excluding the impact of IPR&D charges of $263.1 million in 2008, which are either not tax deductible or for which no tax benefit is currently recognized, the effective tax rate in 2008 was 19%.

The effective rate of tax in 2009 was higher than 2008 (excluding the impact of IPR&D charges) due to increased profits in higher tax territories, and the recognition of valuation allowances against EU and US deferred tax assets. These factors more than offset reductions to the effective rate of tax in 2009 due to: the decrease in valuation allowances relating to state tax credits and loss carry forwards following Massachusetts State tax changes in 2009; the benefit of the effect of the change in the effective state tax rate on the net state deferred tax balance; and higher R&D tax credits in the US, principally the acceleration of the VPRIV program.

Discontinued operations

The loss from discontinued operations for the year to December 31, 2009 was $12.4 million (2008: $17.6 million). The loss in 2009 related to net losses on discontinued Jerini businesses which were either divested or closed during the second quarter of 2009, the loss on disposal of Jerini's Peptides business and the write-off of assets previously classified as held for sale. The loss in 2008 related to certain businesses acquired through the Jerini acquisition, including a charge of $12.9 million arising on the re-measurement of assets held for sale to their fair value less cost to sell.

Liquidity and capital resources

General

The Group's funding requirements depend on a number of factors, including the timing and number of its development programs; corporate, business and product acquisitions; the level of resources required for the expansion of manufacturing and marketing capabilities as the product base expands; increases in accounts receivable and inventory which may arise with any increase in product sales; competitive and technological developments; the timing and cost of obtaining required regulatory approvals for new products; the timing and quantum of milestone payments on collaborative projects; the timing and quantum of tax and dividend payments; the timing and quantum of purchases by the Employee Share Ownership Trust (`ESOT') of Shire shares in the market to satisfy option exercises; the timing and quantum of any additional amounts payable to government bodies challenging previously settled liabilities, including Centers for Medicare and Medicaid Services, (`CMS') applying an alternative interpretation of the Medicaid rebate legislation inconsistent with the Group's calculation of ADDERALL XR Medicaid rebates; and the continuing cash generated from sales of Shire's products and royalty receipts.

An important part of Shire's business strategy is to protect its products and technologies through the use of patents, proprietary technologies and trademarks, to the extent available. The Group intends to defend its intellectual property and as a result may need cash for funding the cost of litigation.

The Group finances its activities through cash generated from operating activities; credit facilities; private and public offerings of equity and debt securities; and the proceeds of asset or investment disposals.

Shire's balance sheet includes $498.9 million of cash and cash equivalents at December 31, 2009. Shire has no debt maturing in the next two years and substantially all of Shire's debt relates to its $1,100 million 2.75% convertible bond which matures in 2014, although these bonds include a put option which could require repayment of the bonds in 2012. In addition, Shire has a committed facility until 2012 of $1,200 million, which is currently undrawn. The current financial situation affecting the banking system and financial markets, together with the current uncertainty in global economic conditions, has resulted in tighter credit markets and a lower level of liquidity in many financial markets. As a result, the Group may not be able to access new equity or debt finance at the same level or cost as it has done previously.

Cash flow activity

Net cash provided by operating activities for the year to December 31, 2009 decreased by 22% to $626.9 million compared to $800.1 million for the year to December 31, 2008, a decrease of $173.2 million. Net cash provided by operating activities was lower in 2009 compared to 2008 due to lower net sales receipts and higher cash tax payments in 2009 compared to 2008. Net cash provided by operating activities in 2008 also included cash inflows on forward foreign exchange contracts which were not repeated in 2009. These factors more than offset the inclusion of interest paid on settlement of the TKT appraisal rights in cash flow from operating activities in 2008.

Net cash used in investing activities was $322.4 million in the year to December 31, 2009. This included the cash cost of purchasing EQUASYM of $72.8 million and expenditure on property, plant and equipment of $254.4 million. These cash outflows were partially offset by receipts of $19.2 million from the sale of non-current investments. Capital expenditure on property, plant and equipment included $127.0 million on construction work at the HGT campus in Lexington, Massachusetts, $18.4 million on construction work at the UK office in Basingstoke, Hampshire, and $19.9 million on infrastructure and capital management projects in the US. This capital expenditure was funded from the Group's existing cash resources and operating cash flows, and the Group expects to fund 2010 capital expenditure which is committed at December 31, 2009 from operational cash flows generated in 2010.

Net cash used in financing activities was $28.7 million for the year to December 31, 2009 which relates to $54.4 million for the dividend payment partially offset by excess tax benefits of stock based compensation of $16.8 million and proceeds from exercise of options of $14.6 million.

Chief Executive Officer's review

The Shire story:

Past, present and future

Like most CEOs, I get my fair share of invitations to speak at conferences. The focus is usually on new trends in our own industry but some look more broadly at business strategy, marketing, or change management. Whatever the banner, there's one single question I get asked more often than any other: how have we managed to take a small specialty pharmaceutical start-up, and turn it into one of the major world players in that field? It's true that when you look at where Shire is today, and compare it with where we were even five years ago, the scale of the change is pretty extraordinary, and those of us who have been part of that change can sometimes underestimate just how far we've come.

2009 was an important year for us - in many ways a watershed year - because the results we've achieved in the last twelve months are the direct result of a clear strategy that's been in place from the start, but has gained real momentum in the last five years. So it seems a good time to look again at the Shire story, because the sort of thinking that's producing strong results today is also shaping the way we're positioning the business for the next phase of our growth.

Phase I: Developing the model

Our business model has always been one of the most important keys to our success. The way we exploit that model is evolving over time, especially as we grow internationally, but our basic approach has remained unchanged for many years: a focus on specialist physicians, niche markets, unmet needs and symptomatic conditions where the impact of a successful treatment is immediate and tangible. This strategy started out as a positive response to a very practical business challenge - how do you build a successful pharmaceutical company when you have neither the resources to undertake large-scale high-risk research, nor the sales infrastructure to compete in mainstream therapy areas in primary care. Shire decided that the smart answer was to focus on lower-risk research and development, and make maximum use of the oral drug delivery know-how we already had in Pharmavene, a business we acquired in 1997 and renamed Shire Laboratories.

Shire Laboratories had the expertise to re-examine existing drugs and formulations like ADDERALL, and explore whether they could be delivered in a more efficient form. For example, if the required dosage could be reduced to once a day from three or four times, the drug would be more convenient for the patient - this was the genesis of ADDERALL XR. This approach proved to be an extremely effective way of developing new drugs for a company at our stage of development, because the chemical formulations we were working on had already been through their safety trials, which meant we could get new versions to market quickly, and start generating the revenues we needed to re-invest in the business.

ADDERALL became the world's leading ADHD treatment in April 2000, with over 30% of the then $1 billion US ADHD market. When ADDERALL XR was launched in 2001, it rapidly achieved a 26% share of a market that was worth around $4 billion by the end of 2008. Shire was becoming a significant industry player; but by 2002 it was obvious to us - if not to the rest of the market - that the world was starting to change.

With hindsight, it seems obvious that generics were going to have an enormous and irreversible impact on the industry, but few people could have anticipated how wide that impact would be, or how quickly it would take effect. The pharmaceutical sector has always worked within the constraints of limited-life patents, and it was no secret that some of the world's big blockbuster drugs were going to come off patent in the late `90s. What did surprise people was the way the generic manufacturers used this opportunity to start challenging existing patents for the first time: the dynamics of the entire pharmaceutical market were about to change.

We soon saw exactly what this was going to mean in practice. We launched ADDERALL XR in 2001, but by 2003 we'd already attracted a generic filing challenging its patents. By 2004 approximately 60% of our product revenues came from our ADHD portfolio, and investors questioned how we would survive the loss of exclusivity. At the same time Shire was also facing the fact that reformulated drugs only attracted a price premium in the US. In the EU, reference pricing meant that health authorities would probably not pay more for a reformulated drug than they did for the older version. So it became evident that the strategy that had initially worked well enough for Shire in the US was going to prove more challenging in building a platform for growth in other international markets. This was a pivotal moment: if Shire could no longer benefit from reasonable exclusivity periods for drugs like ADDERALL XR, or sell them at a price that would recover the investment, we would need a new approach. And we found it.

Phase II: New technologies, new markets

When Matt Emmens took over as CEO in 2003, the Board took a long hard look at where we were and how we were going to grow the business going forward. Shire sold a range of reformulated drugs in the US, and a number of other small-scale treatments on a market-by-market basis in the EU. There were no global drugs, which meant no international economies of scale. So we went back and re-evaluated the feasibility of high-risk early-stage research, and dismissed it again for the same reasons we had before. We then re-examined our basic `specialty pharma' business model and decided that the rationale behind it was still sound - but we needed another way of delivering it. The challenge now was to sell our products on a global basis, at a price that made them economically viable. We also realized that reformulated products are vulnerable to generic challenges, and that new chemical entities have the benefit of longer periods of US regulatory exclusivity. True innovation and foresight in new therapies was the way forward. Around this time our work on developing anagrelide (AGRYLIN in the US and XAGRID in the EU) gave us our first experience of the `orphan' drugs sector. Historically this has been less attractive to very big competitors, because the numbers of patients affected is very small, which is the main reason why regulatory exclusivity can be as much as seven years in the US, and ten years in Europe and some other parts of the world.

Our Business Development team started to look for opportunities in this area that matched our existing focus on specialist physicians, symptomatic diseases, niche markets and unmet needs. What they found was Transkaryotic Therapies, Inc. (`TKT'), the business now known as Shire Human Genetic Therapies. TKT's focus on rare genetic diseases was a version of our own business model, and was built on expertise in a leading-edge proprietary technology. The difference was TKT dealt with large molecules, proteins, whereas Shire's business up to that point had been based on small molecules. Also, TKT's ability to produce enzymes from human cell lines was an exciting new area, but very few drugs had actually been commercialized at that stage, making it something of a calculated risk. But the closer we looked at the TKT opportunity, the more attractive it became. They'd already started to sell REPLAGAL, and there were two or three more drugs in the pipeline that we knew could be sold internationally.

Biologics are now attracting serious attention from many of the larger pharma companies, but we had the foresight to see the opportunity early, and the courage to translate that insight into effective action. This acquisition initially surprised the investment community, but our shareholders quickly realized how much of a great opportunity it was for Shire and the results now speak for themselves. The success of REPLAGAL and ELAPRASE has allowed Shire to establish operations in 28 countries, compared with nine in 2005. This new international infrastructure has given us a very powerful platform from which to exploit the growth that's going to come from the so-called `pharmerging' markets.

Shire's international expansion comes at a time when the US government is putting more and more emphasis on reducing the cost of US healthcare. Most pharmaceutical companies derive at least a third of their revenue from the US; at Shire this percentage was once as high as 80-85%. We've been working to reduce this dependence on the US market over the last few years, and by the end of 2009 it was down to 70%. Our aim is to be making half our revenues outside the US by 2015, and to have 25% of that revenue generated outside the top five European markets. This is an aggressive target and it will take a lot of hard work to get there, but we believe we've built a product range that can help us achieve it.

A key component of that portfolio is VYVANSE, for the treatment of ADHD. At the time we were working through the TKT acquisition, we were also looking at our important ADHD portfolio. ADDERALL XR, our most significant product in terms of sales, was being challenged by generic companies, and clearly wasn't the answer. The solution to this challenge was very similar to the one we found in TKT: having investigated the market we discovered that a company called New River was developing a new way to deliver amphetamine using a proprietary technology platform called `CarrierWave'. This made the effect of the treatment much smoother and longer-lasting for the patient - it had a potential duration of effect of at least 13 hours, meaning only one dose would cover the whole day from start at school to bedtime. No ADHD treatment had been able to do this before, but it seemed that New River's new compound just might. This ultimately led to our acquisition of New River in 2007 bringing us global rights to VYVANSE and ownership of the CarrierWave technology.

As things stand now, we can see real signs that international awareness and understanding of ADHD is growing as is the need to treat adults, and there's an increasing need for an effective once-a-day medication. This will give us the potential to take VYVANSE into a number of markets outside the US. VYVANSE is already covered by US patents out to 2023, and pending patents in the EU out to 2024.

Phase III: The pharma company of the future

The success of Shire's last ten years is the result of a combination of foresight, good planning, and excellent execution. Shire's basic business model remains the same (specialty pharmaceuticals, symptomatic disease, unmet need, niche markets, robust intellectual property protection); but we'll be adapting and growing that model in response to new opportunities and new market trends. Over the next few years we'll also need to carefully manage the internal impact of our international expansion. Traditionally we've been a very Anglo-American company, but as we expand in markets like Eastern Europe, Latin America and the Pacific Rim, we'll need to adapt to new cultures, new languages and new ways of collaborating internally. A business with a presence in nine countries is very different from one that covers 28: we need to understand how these new markets work, and adapt our own operations to fit local needs. A lot of this is about having the right people, but it's also about the right systems, and the right infrastructure, so that we can cope with a much higher volume of international sales.

Another challenge is to grow the business without losing the special culture that's made Shire what it is today, and we want to keep our agile and entrepreneurial way of working. We're aiming to do this though a `hub-and-spoke' model, with regional centers across the world and semi-autonomous business units taking responsibility for decision-making on the ground. It's important for us to have a `personalized' structure that allows us to develop a clear understanding of the needs of the specialist physicians and patient populations that we serve.

On the manufacturing side we'll continue to make our own drugs only if there is a strategic reason to do so. For example, most of the treatments in the Specialty Pharmaceutical portfolio are derived from small molecule chemicals, where out-sourced manufacturers have the experience and the capabilities to produce the product themselves. This is why we're in the process of transferring manufacturing from our site at Owings Mills to one of our contractors. On the other hand, many of our HGT products are made using complex techniques and proprietary technology, and there are currently almost no contractors in the market who can do this better, more cheaply, or more reliably than we can.

Looking more widely, everyone in our industry knows that the world of healthcare is changing. Populations are ageing, which changes the balance of needs, while at the same time there's a constant stream of new and more sophisticated treatments that offer the hope of new cures. The net result is that an ever-larger proportion of GDP is being consumed by healthcare, which translates into more pressure on pricing, and an increasingly competitive market. The successful pharmaceutical company of the 21st century will need to be more cost-effective, more productive, and more proficient at demonstrating the value of its treatments to the authorities who pay for them. Technology will become more and more important, as will new ways of working, not only inside the business, but with partners, academic scientists, and suppliers. We still believe passionately that we have the right model, but we're very much aware that it will need to continue to evolve over the next decade, just as it has already done over the last one. So the new Shire will be `more of the same' in the best possible sense, but better, more efficient, more agile with faster return on investments.

Angus RussellChief Executive OfficerOther developments

- On February 24, 2009 Actavis Elizabeth LLC brought a lawsuit against the FDA seeking to overturn the FDA's decision granting new chemical entity exclusivity to VYVANSE. Shire has intervened in the lawsuit. On October 23, 2009, following a period for public comment, the FDA issued a letter setting forth its analysis of the legal and regulatory issues and reaffirming its decision that VYVANSE is entitled to new chemical entity exclusivity. A hearing on cross-motions for summary judgment was held on February 17, 2010. No rulings on the cross-motions were made at the hearing.

- In May 2009 Shire and GSK commenced working together on the co-promotion of VYVANSE for the treatment of ADHD in adults with the aim of improving recognition and treatment of ADHD in adults in the US.

- On December 2, 2009 Shire announced that it had settled the litigation with Teva over Shire's supply to Teva of an authorized generic version of ADDERALL XR. Shire has been supplying Teva with authorized generic ADDERALL XR since April 1, 2009. Shire's ability to supply the product had been limited by restrictions that the US Drug Enforcement Administration (`DEA') places on amphetamine, which is the product's active ingredient. Teva filed suit claiming that Shire was in breach of its supply contract. After the lawsuit was filed, the DEA granted Shire additional quota for 2009, allowing Shire to supply Teva with additional product. Teva dismissed its lawsuit, including its claims for monetary damages, specific performance and other equitable relief. No consideration was exchanged by the parties as part of the settlement.

- On February 26, 2010 Shire announced the FDA Approval of VPRIVâ„¢ (velaglucerase alfa for injection) for the Treatment of Type 1 Gaucher Disease. The FDA granted marketing approval for VPRIV, a human cell line derived ERT for the long-term treatment of Type 1 Gaucher disease in pediatric and adult patients. The FDA designated VPRIV for Priority Review and granted marketing approval in just 6 months. VPRIV offers patients and their physicians a new treatment option at a critical time, as the supply of the previously approved ERT for Gaucher disease is uncertain and remains disrupted.

2. PRINCIPAL RISKS AND UNCERTAINTIES

Risk factors related to the Shire's business

The Group's key products may not be a commercial success

The commercial success of the Group's key products - ELAPRASE, VYVANSE, LIALDA/MEZAVANT, PENTASA, FOSRENOL, REPLAGAL, INTUNIV, as well as other new products that the Group may launch in the future, including VPRIV, will depend on their approval and acceptance by physicians, patients and other key decision-makers, as well as the timing of the receipt of additional marketing approvals, the scope of marketing approvals as reflected in the product's label, the countries in which such approvals are obtained, the authorization of price and reimbursement in those countries where price and reimbursement is negotiated, and safety, efficacy, convenience and cost-effectiveness of the product as compared to competitive products.

The Group may not be able to grow its product revenues as quickly as anticipated if any or all of the following occur:

- if competitive products are genericized or if the prices of competitor products are otherwise reduced significantly, the prescribing of treatments for the indications that the Group's products treat could be adversely affected;

- if there are unanticipated adverse events experienced with the Group's products not seen in clinical trials that impact the physician's willingness to prescribe the Group's products;

- if issues arise from clinical trials being conducted for post marketing purposes or for registration in another country or if regulatory agencies in one country act in a way that raises concerns for regulatory agencies or for prescribers or patients in another country;

- if patients, payors or physicians favor other treatments over the Group's products;

- if government regulation is stricter for the Group's products than for other treatments;

- if the Group's products suffer a loss of patent protection or competitors successfully challenge or circumvent the Group's patents or regulatory exclusivity;

- if planned geographical expansion into emerging markets is not successful; or

- if the size of the patient populations for the Group's products are less than expected or the Group fails to identify new patients for its products.

If the Group is unable to commercialize any of its key products successfully, there may be a material adverse effect on the Group's revenues, financial condition and results of operations.

In addition, the Group derives significant revenues and earnings from mature portfolio products (whether or not promoted) including CARBATROL, DAYTRANA, CALCICHEW, REMINYL and XAGRID. Sales of these products could decrease as a result of any or all of the following:

- if competitive products are genericized or if the prices of competitor products are otherwise reduced significantly, the prescribing of treatments for the indications that the Group's products treat could be adversely affected;

- if there are unanticipated adverse events experienced with the Group's products not seen in clinical trials that impact the physician's willingness to prescribe the Group's products;

- if patients, payers or physicians favor other treatments over the Group's products;

- if the Group's products suffer a loss of patent protection or competitors successfully challenge or circumvent the Group's patents or regulatory exclusivity; and

- decreased consumer demand or acceptance.

Unanticipated decreases in revenues from ADDERALL XR could significantly reduce the Group's revenues and earnings

In the year ended December 31, 2008 sales of ADDERALL XR were $1,101.7 million, representing approximately 36% of the Group's total revenues. In the year to December 31, 2009 sales of ADDERALL XR declined 43% to $626.5 million, representing approximately 21% of the Group's total revenues. This decline resulted directly from the launch by Teva and Impax of authorized generic versions of ADDERALL XR in April and October 2009, respectively. The Group sells the authorized generic version of ADDERALL XR to Teva and Impax and currently receives royalties from Impax on the sale of its authorized generic. Shire continues to sell the branded version of ADDERALL XR.

Factors that could negatively impact total revenue from ADDERALL XR include, but are not limited to:

- faster than anticipated erosion of ADDERALL XR sales and elimination of the Impax royalty as a result of FDA approval of additional generic competitors;

- issues impacting the production of ADDERALL XR or the supply of amphetamine salts including, but not limited to, the ability to get sufficient quota from the DEA;

- changes in reimbursement policies of third-party payers;

- changes to the level of sales deductions for ADDERALL XR for private or public payers; and

- if the CMS disagree with the Group's interpretation as to how shipments of authorized generic ADDERALL XR should be included in the Medicaid rebate calculation and require the Group to apply an alternative interpretation of the Medicaid rebate legislation.

Any decrease in royalties derived from the sales of 3TC and ZEFFIX could significantly reduce earnings

The Group receives royalties from GSK on the worldwide sales of 3TC and ZEFFIX. In 2009, the Group's royalty income relating to 3TC and ZEFFIX sales was $164.0 million (2008: $180.5 million; 2007: $186.3 million). Any factors that decrease sales of 3TC and ZEFFIX by GSK could significantly reduce the Group's royalty revenue, and results of operations. These include:

- loss of patent protection or ability of competitors to challenge or circumvent patents;

- reduction in the production of 3TC and ZEFFIX;

- technological advances;

- government action/intervention;

- public opinion towards AIDS treatments; and

- product liability claims.

The failure to obtain and maintain reimbursement, or an adequate level of reimbursement, by third-party payers in a timely manner for the Group's products may impact future revenues and earnings

The Group's revenues are partly dependent on the level of reimbursement provided to the Group by governmental reimbursement schemes for pharmaceutical products. Changes to governmental policy or practices could adversely affect the Group's revenues, financial condition and results of operations. In addition, the reimbursement of treatment established by health care providers, private health insurers and other organizations, such as health maintenance organizations and managed care organizations are under downward pressure and this, in turn, could impact on the prices at which the Group can sell its products.

The market for pharmaceutical products could be significantly influenced by the following, which could result in lower prices for the Group's products and/or a reduced demand for the Group's products:

- the ongoing trend toward managed health care, particularly in the US;

- legislative proposals to reform health care and government insurance programs in many of the Group's markets; and

- price controls and non-reimbursement of new and highly priced medicines for which the economic and therapeutic rationales are not established.

The prices for certain of the Group's products when commercialized, in particular products for the treatment of rare genetic diseases such as REPLAGAL, ELAPRASE and VPRIV, may be high compared to other pharmaceutical products. The Group may encounter particular difficulty in obtaining satisfactory pricing and reimbursement for its products, particularly those with a high cost of treatment. The failure to obtain and maintain pricing and reimbursement at satisfactory levels for such products may adversely affect the Group's revenues, financial condition and results of operations.

A disruption to the product supply chain may result in the Group being unable to continue marketing or developing a product or may result in the Group being unable to do so on a commercially viable basis

The Group sources its products from third party contract manufacturers, and for certain products has its own manufacturing capability. In the event of either the Group's failure or the failure of any third party contract manufacturer to comply with mandatory manufacturing standards (often referred to as `Current Good Manufacturing Standards' or cGMP) in the countries in which the Group sells or intends to sell or have its products sold, the Group may experience a delay in supply or be unable to market or develop its products.

The Group dual-sources certain key products and/or active ingredients. However, the Group currently relies on a single source for production of the final drug product for each of DAYTRANA, FIRAZYR, LIALDA/MEZAVANT, PENTASA, REMINYL and XAGRID and relies on a single active ingredient source for each of ELAPRASE, FIRAZYR, FOSRENOL, REMINYL, REPLAGAL and XAGRID.

In the event of financial failure of a third party contract manufacturer or the failure of the third party manufacturer to comply with its contractual obligations, the Group may experience a delay in supply or be unable to market or develop its products. This could have a material adverse affect on the Group's financial condition and results of operations.

There is no assurance that suppliers will continue to supply on commercially viable terms, or be able to supply components that meet regulatory requirements. The Group is also subject to the risk that suppliers will not be able to meet the quantities needed to meet market requirements

The development and approval of the Group's products depends on the ability to procure active ingredients and special packaging materials from sources approved by regulatory authorities. As the marketing approval process requires manufacturers to specify their own proposed suppliers of active ingredients and special packaging materials in their applications, regulatory approval of a new supplier would be required if active ingredients or such packaging materials were no longer available from the supplier specified in the marketing approval. The need to qualify a new supplier could delay the Group's development and commercialization efforts.

The Group uses bovine-derived serum sourced from New Zealand and North America in the manufacturing process for ELAPRASE. The discovery of additional cattle in North America or the discovery of cattle in New Zealand with bovine spongiform encephalopathy, or mad cow disease, could cause the regulatory agencies in some countries to impose restrictions on these products, or prohibit the Group from using these products at all in such countries.

The actions of certain customers can affect the Group's ability to sell or market products profitably, as well as impact net sales and growth comparisons

A small number of large wholesale distributors control a significant share of the US and certain European markets. In 2009, for example, 51% of the Group's product sales were attributable to two customers in the US; McKesson Corp. and Cardinal Health, Inc. In the event of financial failure of any of these customers, the Group may suffer financial loss and a decline in revenues and earnings. In addition, the number of independent drug stores and small chains has decreased as retail pharmacy consolidation has occurred. Consolidation or financial difficulties could cause customers to reduce their inventory levels, or otherwise reduce purchases of the Group's products. Such actions could have an adverse effect on the Group's revenues, financial condition and results of operations. A significant portion of the Group's Specialty Pharmaceuticals product sales are made to major pharmaceutical wholesale distributors as well as to large pharmacies in both the US and Europe. Consequently, product sales and growth comparisons may be affected by fluctuations in the buying patterns of major distributors and other trade buyers. These fluctuations may result from seasonality, pricing, wholesaler buying decisions, or other factors. In addition, a significant portion of the Group's revenues for certain products for treatment of rare genetic diseases are concentrated with a small number of customers. Changes in the buying patterns of those customers may have an adverse effect on the Group's financial condition and results of operations.

Investigations or enforcement action by regulatory authorities or law enforcement agencies relating to the Group's activities in the highly regulated markets in which it operates may result in the distraction of senior management, significant legal costs and the payment of substantial compensation or fines

The Group engages in various marketing, promotional and educational activities pertaining to, as well as the sale of, pharmaceutical products in a number of jurisdictions around the world. The promotion, marketing and sale of pharmaceutical products is highly regulated and the operations of market participants, such as the Group, are closely supervised by regulatory authorities and law enforcement agencies, including the FDA, the US Department of Justice and the DEA in the US. Any inquiries or investigations into the operations of, or enforcement or other regulatory action against, the Group by such regulatory authorities could result in the distraction of senior management for prolonged periods of time, significant defence costs, substantial monetary penalties and require extensive government monitoring of Group activities in the future. As an example on September 23, 2009 the Group received a subpoena from the US Department of Health and Human Services Office of Inspector General in coordination with the US Attorney for the Eastern District of Pennsylvania, seeking production of documents related to the sales and marketing of ADDERALL XR, DAYTRANA and VYVANSE. Shire is cooperating and responding to this subpoena.

The out-sourcing of services can create a significant dependency on third parties, the failure of whom can affect the ability to operate the Group's business and to develop and market products

The Group has entered into many agreements with third parties for the provision of services to enable it to operate its business. If the third party can no longer provide the service on the agreed basis, the Group may not be able to continue the development or commercialization of its products as planned or on a commercial basis. Additionally, it may not be able to establish or maintain good relationships with the suppliers.

The Group has also entered into licensing and co-development agreements with a number of parties. There is a risk that, upon expiration or termination of a third party agreement, the Group may not be able to renew or extend the agreement with the third party as commercial interests may no longer coincide. In such circumstances, the Group may be unable to continue to develop or market its products as planned and could be required to abandon or divest a product line.

Risk factors related to the pharmaceutical industry in general

The actions of governments, industry regulators and the economic environments in which the Group operates may adversely affect its ability to develop and market its products profitably

Changes to laws or regulations impacting the pharmaceutical industry, in any country in which the Group conducts its business, may adversely impact the Group's revenues, financial condition and results of operations. In particular, changes to the regulations relating to orphan drug status may affect the exclusivity granted to products with such designation.

The introduction of new products by competitors may impact future revenues

The manufacture and sale of pharmaceuticals is highly competitive. Many of the Group's competitors are large, well-known pharmaceutical, biotechnology, chemical and healthcare companies with considerable resources. Companies with more resources and larger R&D expenditures have a greater ability to fund clinical trials and other development work necessary for regulatory applications. They may also be more successful than the Group in acquiring or licensing new products for development and commercialization. If any product that competes with one of the Group's principal drugs is approved, the Group's sales of that drug could fall.

The pharmaceutical and biotechnology industries are also characterized by continuous product development and technological change. The Group's products could, therefore, be rendered obsolete or uneconomic, through the development of new products, technological advances in manufacturing or production by its competitors.The successful development of pharmaceutical products is highly uncertain and requires significant expenditures and time

Products that appear promising in research or development may be delayed or fail to reach later stages of development or the market for several reasons, including:

- pre-clinical or clinical tests may show the product to lack safety or efficacy;

- delays may be caused by slow enrollment in clinical studies; additional clinical supplies requirements; extended length of time to achieve study endpoints; additional time requirements for data analysis or dossier preparation; discussions with regulatory agencies, including regulatory agency requests for additional pre-clinical or clinical data; delays at regulatory agencies due to staffing or resource limitations; analysis of or changes to study design; unexpected safety, efficacy, or manufacturing issues. Delays may arise from shared control with collaborative partners in the planning and execution of the product development, scaling of the manufacturing process, or getting approval for manufacturing;

- manufacturing issues, pricing, reimbursement issues, or other factors may render the product economically unviable;

- the proprietary rights of others and their competing products and technologies may prevent the product from being developed or commercialized; and

- failure to receive necessary regulatory approvals.

Success in pre-clinical and early clinical trials does not ensure that large-scale clinical trials will be successful. Clinical results are frequently susceptible to varying interpretations that may delay, limit, or prevent regulatory approvals. The length of time necessary to complete clinical trials and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly and may be difficult to predict. If the Group's large-scale or late state clinical trials for a product are not successful, the Group will not recover its substantial investments in that product.

In addition, even if the products receive regulatory approval, they remain subject to ongoing regulatory requirements, including, for example, obligations to conduct additional clinical trials or other non-clinical testing, changes to the product label, new or revised requirements for manufacturing, written notifications to physicians, or product recalls or withdrawals. Further, a number of the Group's products that treat ADHD contain controlled substances and are subject to regulation by the US DEA and equivalent agencies in other countries.

The failure of a strategic partner to develop and commercialize products could result in delays in approval or loss of revenue

The Group enters into strategic partnerships with other companies in areas such as product development and sales and marketing. In these partnerships, the Group is sometimes dependent on its partner to deliver results. While these partnerships are supported by contracts, the Group may not exercise direct control. If a partner fails to perform or experiences financial difficulties, the Group may suffer a delay in the development, a delay in the approval or a reduction in sales or royalties of a product.

The failure to secure new products or compounds for development, either through in-licensing, acquisition or internal research and development efforts, may have an adverse impact on the Group's future results

The Group's future results will depend, to a significant extent, upon its ability to in-license, acquire or develop new products or compounds. The Group also expends significant resources on research and development. The failure to in-license or acquire new products or compounds, on a commercially viable basis, could have a material adverse effect on the Group's financial position. The failure of these efforts to result in the development of products appropriate for testing in human clinical trials could have a material adverse effect on the Group's revenues, financial condition and results of operations.

The Group may fail to obtain, maintain, enforce or defend the intellectual property rights required to conduct its business

The Group's success depends upon its ability and the ability of its partners and licensors to protect their intellectual property rights. Where possible, the Group's strategy is to register intellectual property rights, such as patents and trademarks. The Group also relies variously on trade secrets, unpatented know-how and technological innovations and contractual arrangements with third parties to maintain its competitive position.

Patents and patent applications covering a number of the technologies and processes owned or licensed to the Group have been granted, or are pending in various countries, including the US, Canada, major European countries and Japan. The Group intends to enforce vigorously its patent rights and believes that its partners intend to enforce vigorously patent rights they have licensed to the Group. However, patent rights may not prevent other entities from developing, using or commercializing products that are similar or functionally equivalent to the Group's products or technologies. The Group's patent rights may be successfully challenged in the future or laws providing such rights may be changed or withdrawn. The Group cannot assure investors that its patents and patent applications or those of its third party manufacturers will provide valid patent protection sufficiently broad to protect the Group's products and technology or that such patents will not be challenged, revoked, invalidated, infringed or circumvented by third parties. In the regular course of business, the Group is party to litigation or other proceedings relating to intellectual property rights.

Additionally, the Group's products, or the technologies or processes used to formulate or manufacture those products may now, or in the future, infringe the patent rights of third parties. It is also possible that third parties will obtain patent or other proprietary rights that might be necessary or useful for the development, manufacture or sale of the Group's products. If third parties are the first to invent a particular product or technology, it is possible that those parties will obtain patent rights that will be sufficiently broad to prevent the Group or its strategic partners from developing, manufacturing or selling its products. The Group may need to obtain licenses for intellectual property rights from others to develop, manufacture and market commercially viable products and may not be able to obtain these licenses on commercially reasonable terms, if at all. In addition, any licensed patents or proprietary rights may not be valid and enforceable.

The Group also relies on trade secrets and other un-patented proprietary information, which it generally seeks to protect by confidentiality and nondisclosure agreements with its employees, consultants, advisors and partners. These agreements may not effectively prevent disclosure of confidential information and may not provide the Group with an adequate remedy in the event of unauthorized disclosure of such information. If the Group's employees, scientific consultants or partners develop inventions or processes that may be applicable to the Group's products under development, such inventions and processes will not necessarily become the Group's property, but may remain the property of those persons or their employers. Protracted and costly litigation could be necessary to enforce and determine the scope of the Group's proprietary rights. The failure to obtain or maintain patent and trade secret protection, for any reason, could allow other companies to make competing products and reduce the Group's product sales.

The Group has filed applications to register various trademarks for use in connection with its products in various countries including the US and countries in Europe and Latin America and intends to trademark new product names as new products are developed. In addition, with respect to certain products, the Group relies on the trademarks of third parties. These trademarks may not afford adequate protection or the Group or the third parties may not have the financial resources to enforce any rights under any of these trademarks. The Group's inability or the inability of these third parties to protect their trademarks because of successful third party claims to those trademarks could allow others to use the Group's trademarks and dilute their value.

If a marketed product fails to work effectively or causes adverse side effects, this could result in damage to the Group's reputation, the withdrawal of the product and legal action against the Group

Unanticipated side effects or unfavorable publicity from complaints concerning any of the Group's products, or those of its competitors, could have an adverse effect on the Group's ability to obtain or maintain regulatory approvals or successfully market its products. The testing, manufacturing, marketing and sales of pharmaceutical products entails a risk of product liability claims, product recalls, litigation and associated adverse publicity. The cost of defending against such claims is expensive even when the claims are not merited. A successful product liability claim against the Group could require the Group to pay a substantial monetary award. If, in the absence of adequate insurance coverage, the Group does not have sufficient financial resources to satisfy a liability resulting from such a claim or to fund the legal defense of such a claim, it could become insolvent. Product liability insurance coverage is expensive, difficult to obtain and may not be available in the future on acceptable terms. Although the Group carries product liability insurance when available, this coverage may not be adequate. In addition, it cannot be certain that insurance coverage for present or future products will be available. Moreover, an adverse judgment in a product liability suit, even if insured or eventually overturned on appeal, could generate substantial negative publicity about the Group's products and business and inhibit or prevent commercialization of other products.

Loss of highly qualified management and scientific personnel could cause the Group subsequent financial loss

The Group faces competition for highly qualified management and scientific personnel from other companies, academic institutions, government entities and other organizations. It may not be able to successfully attract and retain such personnel. The Group has agreements with a number of its key scientific and management personnel for periods of one year or less. The loss of such personnel, or the inability to attract and retain the additional, highly skilled employees required for its activities could have an adverse effect on the Group's business.

3. DIRECTORS' RESPONSIBILITY STATEMENT

Each of the current Directors, whose names and functions are listed below, confirms that, to the best of his or her knowledge:

(i) the Group Financial statements, which have been prepared under US GAAP, present fairly, in all material respects, the financial condition, results of operations and cash flows of the group; and

(ii) the Business Review includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

Matthew Emmens - ChairmanAngus Russell - Chief Executive OfficerGraham Hetherington - Chief Financial OfficerDavid Kappler - Non-Executive DirectorPatrick Langlois - Non-Executive DirectorKate Nealon - Non-Executive DirectorJeffrey Leiden - Non-Executive DirectorDavid Stout - Non-Executive Director

Registered in Jersey, No. 99854, 22 Grenville Street, St Helier, Jersey JE4 8PX

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