SHIRE PLC
Half Yearly Report
July 30, 2015 -Shire plc (the "Group") (LSE: SHP, NASDAQ: SHPG), in accordance
with the Financial Conduct Authority's Disclosure Rules and Transparency Rules,
is publishing today its Half Yearly Report for the six months ended June 30,
2015.
It should be noted that on July 23, 2015 the Group previously announced its
results in respect of the same period.
For further information please contact:
Investor Relations
- Sarah Elton-Farr seltonfarr@shire.com +44 1256 894 157
Media
- Michele Galen mgalen@shire.com +1 781 482 1867
- Brooke Clarke brclarke@shire.com +44 1256 894 829
Notes to editors
Shire enables people with life-altering conditions to lead better lives.
Our strategy is to focus on developing and marketing innovative specialty
medicines to meet significant unmet patient needs.
We focus on providing treatments in Rare Diseases, Neuroscience,
Gastrointestinal and Internal Medicine and are developing treatments for
symptomatic conditions treated by specialist physicians in other targeted
therapeutic areas, such as Ophthalmics.
www.shire.com
Shire plc
Half Yearly Report 2015
Registered in Jersey, No. 99854, 22 Grenville Street, St Helier, Jersey JE4 8PX
Contents
Page
The "safe harbor" statement under the Private Securities Litigation Reform Act 4
of 1995
Trade Marks 4
Chief Executive Officer's review 5
Business overview for the six months to June 30, 2015 6
Results of operations for the six months to June 30, 2015 and June 30, 2014 14
Principal risks and uncertainties 22
Directors' responsibility statement 24
Unaudited consolidated balance sheets at June 30, 2015 and December 31, 2014 25
Unaudited consolidated statements of income for the six months to June 30, 27
2015 and June 30, 2014
Unaudited consolidated statement of comprehensive income for the six months to
June 30, 2015 and 29
June 30, 2014
Unaudited consolidated statement of changes in equity for the six months to 30
June 30, 2015
Unaudited consolidated statement of cash flows for the six months to June 30, 31
2015 and June 30, 2014
Notes to the unaudited consolidated financial statements 33
Non GAAP Measures 59
Independent review report to Shire plc 61
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, that:
* Shire's products may not be a commercial success;
* product sales from ADDERALL XR and INTUNIV are subject to generic
competition;
* the failure to obtain and maintain reimbursement, or an adequate level of
reimbursement, by third-party payers in a timely manner for Shire's
products may affect future revenues, financial condition and results of
operations;
* Shire conducts its own manufacturing operations for certain of its products
and is reliant on third party contract manufacturers to manufacture other
products and to provide goods and services. Some of Shire's products or
ingredients are only available from a single approved source for
manufacture. Any disruption to the supply chain for any of Shire's products
may result in Shire being unable to continue marketing or developing a
product or may result in Shire being unable to do so on a commercially
viable basis for some period of time;
* the manufacture of Shire's products is subject to extensive oversight by
various regulatory agencies. Regulatory approvals or interventions
associated with changes to manufacturing sites, ingredients or
manufacturing processes could lead to significant delays, an increase in
operating costs, lost product sales, an interruption of research activities
or the delay of new product launches;
* Shire has a portfolio of products in various stages of research and
development. The successful development of these products is highly
uncertain and requires significant expenditures and time, and there is no
guarantee that these products will receive regulatory approval;
* the actions of certain customers could affect Shire's ability to sell or
market products profitably. Fluctuations in buying or distribution patterns
by such customers can adversely affect Shire's revenues, financial
condition or results of operations;
* investigations or enforcement action by regulatory authorities or law
enforcement agencies relating to Shire's activities in the highly regulated
markets in which it operates may result in significant legal costs and the
payment of substantial compensation or fines;
* adverse outcomes in legal matters and other disputes, including Shire's
ability to enforce and defend patents and other intellectual property
rights required for its business, could have a material adverse effect on
Shire's revenues, financial condition or results of operations;
* Shire faces intense competition for highly qualified personnel from other
companies and organizations. Shire is undergoing a corporate reorganization
and was the subject of an unsuccessful acquisition proposal and the
consequent uncertainty could adversely affect Shire's ability to attract
and/or retain the highly skilled personnel needed for Shire to meet its
strategic objectives;
* failure to achieve Shire's strategic objectives with respect to the
acquisition of NPS Pharmaceuticals Inc. ("NPS Pharma") may adversely affect
Shire's financial condition and results of operations; and
* other risks and uncertainties detailed from time to time in Shire's filings
with the Securities and Exchange Commission, including those risks outlined
in "Item 1A: Risk Factors" in Shire's Annual Report on Form 10-K for the
year ended December 31, 2014.
TRADE MARKS
All trade marks designated ® and ™ used in this press release are trade marks
of Shire plc or companies within the Shire group except for 3TC® and ZEFFIX®
which are trade marks of GlaxoSmithKline, PENTASA® which is a trade mark of
FERRING B.V. Corp, LIALDA® which is a trade mark of Nogra International
Limited, MEZAVANT® which is a trade mark of Guiliani International Limited,
CALCICHEW® which is a trade mark of Takeda, DERMAGRAFT® which is a trademark of
Organogenesis Inc., VANCOCIN® which is a trademark of ANI Pharmaceuticals Inc.
and DAYTRANA® which is a trade mark of Noven Pharmaceutical Inc. Certain trade
marks of Shire plc or companies within the Shire group are set out in Shire's
most recent Annual Report and Accounts for the year ended December 31, 2014.
Chief Executive Officer's review
We are pleased to enclose our financial results for the six-month period ended
June 30, 2015. This Half Yearly Report includes condensed consolidated
financial statements prepared in accordance with generally accepted accounting
principles in the United States of America ("US GAAP").
Flemming Ornskov, M.D., Shire's Chief Executive Officer, commented:
"During the first half of 2015, we delivered double-digit underlying product
sales growth (on a Non GAAP CER(1) basis and excluding INTUNIV) amid continued
investment in our pipeline and future growth drivers.
Total reported product sales in the first half of 2015 were $2.9 billion, up
4%, and Non GAAP EBITDA(2) reached $1.4 billion, growing 5%. We are especially
pleased by the performance of VYVANSE, with total product sales growing 18% to
$842 million. This includes the market expansion of VYVANSE for adults with
ADHD and the launch of the new adult indication for moderate to severe Binge
Eating Disorder. The Rare Disease Business Unit continues to be our largest,
with product sales of approximately $1.1 billion. LIALDA has also performed
well, gaining market share and generating product sales of $306 million, up
12%.
During the first half of the year, we further strengthened our focus on rare
diseases through the acquisition of NPS Pharma, the largest acquisition in
Shire's history. NPS Pharma enabled us to leverage our GI commercial
capabilities and global footprint while gaining access to two exciting rare
disease assets, GATTEX®/REVESTIVE® and NATPARA®. GATTEX/REVESTIVE is off to a
strong start and we are pleased with the early progress of NATPARA. This
positive momentum underscores the strength of our M&A capabilities to
effectively identify, acquire and integrate assets and deliver value. The NPS
Pharma commercial integration has been completed.
Our innovative pipeline saw several key developments in the first half of 2015.
We received a Priority Review designation for lifitegrast for Dry Eye Disease
and in July 2015 we completed enrolment of the OPUS 3 study for lifitegrast.
In addition, we initiated a Phase 3 study for SHP465 ahead of plan and we
received favourable FDA feedback on a path forward for a potential Phase 3
study for maribavir. Shire now has the broadest and deepest pipeline in its
history."
Flemming Ornskov, M.D.
Chief Executive Officer
1. The Non GAAP CER financial measures included within this release is
explained on page 59.
2. Non GAAP earnings before interest, tax, depreciation and amortization
("EBITDA"). A reconciliation to US GAAP net income is provided on page 60.
Business overview for the six months to June 30, 2015
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and related notes appearing
elsewhere in this Half Yearly Report for Shire plc and its subsidiaries
(collectively "Shire" or "the Group").
Significant events in the six months to June 30, 2015 and recent developments
Products
INTUNIV for the treatment of attention deficit hyperactivity disorder ("ADHD")
in the EU
* The Committee for Medicinal Products for Human Use ("CHMP") of the European
Medicines Agency ("EMA") has adopted a positive opinion at its July 2015
meeting recommending marketing authorization approval of INTUNIV
(guanfacine) extended release drug product, a non-stimulant indicated as
part of a comprehensive treatment programme for ADHD in children and
adolescents 6 to 17 years old for whom stimulants are not suitable, not
tolerated or have been shown to be ineffective.
The CHMP positive opinion will be reviewed by the European Commission ("EC")
with the expectation that the EC willthen grant a centralized marketing
authorization with unified labeling that is valid in the 28 countries that are
members of the European Union, as well as European Economic Area members,
Iceland, Liechtenstein and Norway.
RESOLOR - for the Symptomatic Treatment of Chronic Constipation in Men
* On May 27, 2015, Shire received the EC decision amending the terms of the
RESOLOR Marketing Authorisation to the use of RESOLOR in adults for the
symptomatic treatment of chronic constipation forwhom laxatives fail to
provide adequate relief. In Europe, RESOLOR was initially approved for use
in women only, so the new variation extends the use of this treatment to
male patients.
VYVANSE - for the treatment of moderate to severe Binge Eating Disorder ("BED")
in adults
* Topline results from a 39-week, long-term maintenance of efficacy study
(SPD489-346) in adults with moderate to severe BED showed VYVANSE superior
to placebo (p<.001) on the primary efficacy endpoint of time to relapse of
binge eating symptoms. At the conclusion of the trial, patients continuing
on VYVANSE had a lower proportion of relapse of 5/136 (3.7%) as compared to
patients continuing on placebo 42/131 (32.1%).
* The results of a separate, 12-month open-label safety extension study
(SPD489-345) were generally consistent with the safety profile currently
outlined in the United States Prescribing information.
* Based on the results of these studies, the Group plans to submit a
supplemental New Drug Application by year end to the US Food and Drug
Administration ("FDA"). The FDA will evaluate adding this data to the
current labeling for VYVANSE.
* On January 30, 2015 Shire launched VYVANSE for the treatment of adults with
moderate to severe BED.
VYVANSE - for the treatment of ADHD
* On March 23, 2015 Shire announced VYVANSE was available in a 10mg strength
capsule. This new titration dose, which was approved by the FDA on October
30, 2014, is the seventh VYVANSE dosage strength available in addition to
the 20mg, 30mg, 40mg, 50mg, 60mg, and 70mg capsule strengths. On April 7,
2015 Health Canada approved the 10mg dose strength for incremental
titration adjustments.
NATPARA - for the treatment of hypoparathyroidism
* On January 23, 2015 it was announced that the FDA had approved NATPARA as
an adjunct to calcium and vitamin D to control hypocalcemia in patients
with hypoparathyroidism. Hypoparathyroidism is a rare endocrine disorder
characterized by insufficient levels of parathyroid hormone, or PTH.
NATPARA is a bioengineered replica of human PTH. NATPARA was launched on
April 1, 2015.
Pipeline
SHP620 (maribavir) - for the treatment of cytomegalovirus ("CMV") infection in
transplant patients
* In late June 2015, Shire conducted an end of Phase 2 meeting with the FDA
and received further clarity on the path forward. Based on this feedback,
Shire is considering progressing the program into Phase 3 in 2016.
SHP631 - for the treatment of both the central nervous system ("CNS") and
somatic manifestations in patients with Hunter syndrome ("MPS II")
* In Q2 2015, a Phase 1 trial of SHP631 (also known as AGT-182) was
initiated. SHP631 is an investigational enzyme replacement therapy for the
potential treatment of both the CNS and somatic manifestations in patients
with Hunter syndrome MPS II.
SHP606 (lifitegrast) - for the treatment of the signs and symptoms of Dry Eye
Disease
* Shire has fully enrolled a Phase 3 safety and efficacy study (OPUS-3) in
support of potential US and potential international regulatory submissions.
OPUS-3 is a multicenter, randomized, double-masked, placebo-controlled,
parallel arm study with a 14 day open-label placebo screening run-in period
followed by a 12 week randomized, masked treatment period with a primary
efficacy endpoint in subjective patient reported symptoms of dry eye
disease as measured by the eye dryness score.
* On April 9, 2015 Shire announced that the FDA accepted the New Drug
Application for lifitegrast and granted a Priority Review designation. The
FDA has set an action date of October 25, 2015, based on the Prescription
Drug User Fee Act V.
SHP625 - for the treatment of cholestatic liver disease
* In June 2015, Shire also received preliminary results from an interim
analysis of the INDIGO study, a 72 week open label Phase 2 study in PFIC.
The interim analysis was based on the first 12 subjects who completed 13
weeks of treatment per protocol. SHP625 was well tolerated but there was no
statistically significant reduction in mean serum bile levels from
baseline.A change from baseline analysis was planned as there is no placebo
treatment arm in this study. The changes from baseline for pruritus did
reach statistical significance. 5 of the 20 patients who received the drug
experienced sustained decreases from baseline in serum bile acids ranging
from 86 to 99% and also experienced marked reductions in pruritus as
evidenced by absence of or only mild scratching at their last evaluation in
this ongoing study. In this subset of patients where biomarkers of liver
damage were elevated at baseline, as assessed by Alanine transaminase and
Total Bilirubin, these values were normalized during the study. Shire
continues to analyze the totality of the data to determine an appropriate
path forward.
* In late May 2015, Shire also received results from the CLARITY trial, a 13
week, double-blind, placebo-controlled Phase 2 study in combination with
Ursodeoxycholic Acid in Primary Biliary Cirrhosis. SHP625 did not meet the
primary endpoint as measured by change in pruritus or the secondary
endpoint in level of liver disease as measured by alkaline phosphatase.
However, there was a significant reduction in mean serum bile acid levels
versus placebo.
* On April 9, 2015 Shire announced that the small 13-week Phase 2 IMAGO trial
of its investigational compound SHP625 did not meet the primary or
secondary endpoints in the study of 20 pediatric patients with Alagille
syndrome. Given the topline results from the IMAGO study of SHP625 in
pediatric patients with Alagille syndrome, we plan to analyze the totality
of data to better understand the mixed results we have seen. Data for this
and other indications will be important to fully understand the safety and
efficacy of SHP625 in patients with cholestatic liver disease.
SHP465 - for the treatment of adults with ADHD
* On April 7, 2015 Shire announced that it had reached an agreement with the
FDA on a clear regulatory path for SHP465 (triple-bead mixed amphetamine
salts), an investigational oral stimulant medication being evaluated as a
potential treatment for ADHD in adults. Shire has begun dosing patients in
a Phase 3 study designed to evaluate the efficacy of SHP465 administered as
a daily morning dose compared to a placebo in the treatment of children and
adolescents (6-17 years of age inclusive) diagnosed with ADHD.
SHP609 - for the treatment of Hunter syndrome with CNS symptoms
* On January 26, 2015 Shire announced that the FDA has granted Fast Track
designation for SHP609 for the treatment of neurocognitive decline
associated with Hunter syndrome (mucopolysaccharidosis II).
SHP611 - for the treatment of the late infantile form of MLD
* SHP611 is in development as recombinant human arylsulfatase A (rASA)
delivered intrathecally every other week for the treatment of the late
infantile form of MLD. This product has been granted orphan drug
designation in the US and the EU. The Group initiated a 24 patient Phase 1/
2 clinical trial in August 2012. The primary endpoint of this trial is to
determine the safety of ascending doses (10mg, 30mg, and 100 mg) of rASA
over 40 weeks. Secondary and exploratory endpoints focused on efficacy and
include decline in motor function as defined by change in baseline Gross
Motor Function Measure (GMFM-88). Based upon interim data for the first 18
patients, SHP611 was safe and well tolerated at all doses. In addition,
while not statistically significant and despite a decline in GMFM-88 score
across all doses, the 100mg dose caused a slower decline over the 40 week
study period compared to the other two treatment groups, most notably for
those patients with GMFM-88 > 40-50 at baseline. Analysis of other
exploratory efficacy measures were also encouraging. We will continue to
analyze these interim results and determine an optimal path forward in this
development program.
Other developments
Board and Committee Changes
* On June 11, 2015 Shire announced the appointment of Olivier Bohuon to the
Shire Board of Directors as a Non-Executive Director. Olivier will also be
a member of the Science & Technology Committee of the Shire Board. Both
appointments were effective from July 1, 2015.
Meritage acquisition
* On February 24, 2015 Shire announced that it had acquired Meritage Pharma,
Inc., a privately-held Group, for an upfront payment of $75 million and
additional contingent payments based on the achievement of development and
regulatory milestones. With the acquisition, Shire has acquired the global
rights to Meritage's Phase 3-ready compound, Oral Budesonide Suspension
(SHP621), for the treatment of adolescents and adults with eosinophilic
esophagitis, a rare, chronic inflammatory GI disease. This acquisition
further enhances Shire's late-stage pipeline and leverages the Group's rare
disease and GI commercial infrastructure and expertise.
NPS Pharma acquisition
* On February 21, 2015 Shire completed the acquisition of NPS Pharma. Shire
plans to accelerate the growth of NPS Pharma's innovative portfolio through
its market expertise in gastrointestinal ("GI") disorders, core
capabilities in rare disease patient management, and global footprint. The
integration is progressing according to plan.
Legal Proceedings
See note 15 Commitments and contingencies of this Half Yearly Report for
details of Shire's legal proceedings.
Dividend
* In respect of the six months ended June 30, 2015 the Board resolved to pay
an interim dividend of 4.21 US cents per Ordinary Share (2014: 3.83 US
cents per Ordinary Share).
Dividend payments will be made in Pounds Sterling to holders of Ordinary Shares
and in US Dollars to holders of ADSs. A dividend of 2.69(1) pence per Ordinary
Share (an increase of 20% compared to 2014: 2.24 pence) and 12.63 US cents per
ADS (an increase of 10% compared to 2014: 11.49 US cents) will be paid on
October 2, 2015 to shareholders on the register as at the close of business on
September 4, 2015.
1. Translated using a GBP:USD exchange rate of 1.5631.
Research and development
Products in registration as of June 30, 2015
INTUNIV for the treatment of ADHD in the EU
The CHMP of the EMA has adopted a positive opinion at its July 2015 meeting
recommending marketing authorization approval of INTUNIV (guanfacine) extended
release drug product, a non-stimulant indicated as part of a comprehensive
treatment programme for ADHD in children and adolescents 6 to 17 years old for
whom stimulants are not suitable, not tolerated or have been shown to be
ineffective.
The CHMP positive opinion will be reviewed by the EC with the expectation that
the EC will then grant a centralized marketing authorization with unified
labeling that is valid in the 28 countries that are members of the European
Union, as well as European Economic Area members, Iceland, Liechtenstein and
Norway.
SHP606 (lifitegrast) for the treatment of DED
On April 9, 2015 Shire announced that the FDA had accepted for filing the NDA
for lifitegrast and had granted a Priority Review designation. The FDA is
expected to provide a decision on October 25, 2015, based on the Prescription
Drug User Fee Act V action date. In parallel to the NDA submission, Shire has
fully enrolled a Phase 3 safety and efficacy study (OPUS-3) in support of
potential US and potential international regulatory submissions. OPUS-3 is a
multicenter, randomized, double-masked, placebo-controlled, parallel arm study
with a 14 day open-label placebo screening run-in period followed by a 12 week
randomized, masked treatment period with a primary efficacy endpoint in
subjective patient reported symptoms of dry eye disease, as measured by the eye
dryness score.
On April 30, 2014 Shire announced top-line results from the prospective,
randomized, double-masked, placebo-controlled SONATA trial which indicated no
ocular or drug-related serious adverse events. The safety data indicated in the
SONATA trial was entirely consistent with that observed in the Phase 2, OPUS-1
and OPUS-2 studies for lifitegrast.
NATPAR for the treatment of HPT
NATPAR (NATPARA in the US) is currently under review in Europe as an adjunct to
calcium and vitamin D to control hypocalcemia in patients with HPT.
Products in clinical development as of June 30, 2015
Phase 3 and Phase 3-ready
SHP465 for the treatment of ADHD in adults
Shire's NDA for SHP465 was previously submitted in 2006 to support the use of
SHP465 as a longer-acting, once-daily treatment for ADHD in adults. With the
growing adult ADHD population there is now a larger patient population and
Shire expects a greater commercial need for this type of product than in 2006.
SHP465 (mixed salts of a single entity amphetamine) capsules provide an
extended-release of amphetamines to provide coverage of ADHD symptoms for
adults throughout the day. On April 7, 2015 Shire announced that it had
reached an agreement with the FDA on a clear regulatory path for SHP465. Shire
has begun dosing patients in a Phase 3 study designed to evaluate the efficacy
of SHP465 administered as a daily morning dose compared to a placebo in the
treatment of children and adolescents (6-17 years of age inclusive) diagnosed
with ADHD.
SHP621 OBS, for the treatment of adolescents and adults with Esoinophilic
Esophagitis ("EoE")
With the Meritage acquisition, Shire has acquired the global rights to
Meritage's Phase 3-ready compound, OBS, for the treatment of adolescents and
adults with EoE, a rare, chronic inflammatory GI disease. EoE is a chronic
disease that is increasingly being diagnosed in children and adults, with an
estimated prevalence in the U.S. of ~181,000. It is characterized by
inflammation and accumulation of a specific type of immune cell, called an
eosinophil, in the esophagus. EoE patients may have persistent or relapsing
symptoms related to esophageal dysfunction, which include dysphagia (difficulty
swallowing) and food impaction.
OBS is a proprietary viscous oral formulation of budesonide that is designed to
coat the esophagus where the drug can act locally. Budesonide is the active
pharmaceutical ingredient in several products approved by the FDA, including
products for the treatment of asthma, allergic rhinitis, ulcerative colitis and
Crohn's disease. Budesonide is a corticosteroid and has an established safety
profile in those diseases. The FDA has granted orphan drug designation to OBS
for the treatment of patients with EoE.
FIRAZYR for the treatment of ACE inhibitor-induced Angioedema ("ACE-I AE")
A Phase 3 clinical trial to assess the efficacy of FIRAZYR for the treatment of
ACE-I AE was initiated in the fourth quarter of 2013 and is ongoing.
FIRAZYR for the treatment of Hereditary Angioedema ("HAE") in Japan
Shire plans to initiate a Phase 3 trial to evaluate the efficacy and safety of
FIRAZYR for the treatment of HAE in Japanese patients in 2015.
SHP555 (prucalopride; marketed as RESOLOR in the EU) for the treatment of
chronic constipation in the US
On January 10, 2012 Shire announced that it had acquired the rights to develop
and market prucalopride in the US in an agreement with Janssen Pharmaceutica
N.V. Discussions have been conducted with the FDA and an NDA submission pathway
has been agreed. Planning is underway to confirm Phase 3 program activities and
timelines.
INTUNIV for the treatment of ADHD in Japan
Under a collaboration agreement, Shionogi and Shire will co-develop and sell
treatments for ADHD in Japan, including INTUNIV. A Phase 3 clinical program to
evaluate the efficacy and safety of INTUNIV in Japanese patients aged 6 to 17
was initiated in the second quarter of 2013 and is ongoing.
SHP616 (CINRYZE) for routine prophylaxis against HAE attacks in adolescent and
adult patients in Japan
CINRYZE is indicated in the US for prophylaxis and in the EU for both
prophylaxis and acute treatment of angioedema attacks in adolescent and adult
patients with HAE. Based on feedback from the Pharmaceutical and Medical
Devices Agency ("PMDA"), a Clinical Trial Notification ("CTN") was resubmitted
and approved on October 2, 2014.
Phase 2
LDX(1) for the treatment of ADHD in Japan
Under a collaboration agreement, Shionogi and Shire will co-develop and sell
ADHD products in Japan, including LDX. A Phase 2 clinical program to evaluate
the efficacy and safety of LDX in Japanese patients aged 6 to 17 was initiated
in the second quarter of 2013 and is ongoing.
1. Currently marketed as VYVANSE in the US and ELVANSE in certain countries in
the EU for the treatment of ADHD.
SHP607 for the prevention of Retinopathy of Prematurity ("ROP")
SHP607 is in development as a protein replacement therapy for the preventative
treatment of ROP, a rare eye disorder associated with premature birth. In
December 2014 Shire received notification that SHP607 was granted Fast Track
designation by the FDA. In addition, this product has been granted orphan drug
designation in both the US and EU. A Phase 2 clinical trial is currently
ongoing.
SHP609 for the treatment of Hunter syndrome with CNS symptoms
SHP609 is in development as an enzyme replacement therapy ("ERT") delivered
intrathecally for Hunter syndrome patients with cognitive impairment. In
January 2015 the FDA granted SHP609 Fast Track designation. In addition, this
product has been granted orphan designation in the US. The Group initiated a
pivotal Phase 2/3 clinical trial in the fourth quarter of 2013 which is
ongoing.
SHP610 for Sanfilippo A syndrome (Mucopolysaccharidosis IIIA)
SHP610 is in development as an ERT delivered intrathecally for the treatment of
Sanfilippo A syndrome, a Lysosomal Storage Disorder. The Group initiated a
Phase 1/2 clinical trial in August 2010 which has now completed. Shire
initiated a Phase 2b clinical trial for SHP610, which is designed to establish
clinical proof of concept. The product has been granted orphan drug designation
in the US and in the EU.
SHP620 (maribavir) for the treatment of CMV infection in transplant patients
SHP620 was acquired as part of the acquisition of ViroPharma. Shire has
completed two Phase 2 studies in transplant recipients. The first trial was in
first-line treatment of asymptomatic CMV viremia in transplant recipients and
the results of this study showed that maribavir, at all doses, was at least as
effective as valganciclovir in the reduction of circulating CMV to below the
limits of assay detection (undetectable plasma CMV). The second study recently
completed was for the treatment of resistant/refractory CMV infection/disease
in transplant recipients. The purpose of this study was to determine whether
maribavir is efficacious and safe in patients with disease which is resistant
or refractory to the standard of care CMV therapy (e.g., valganciclovir,
foscarnet). This study also showed that maribavir, at all doses, was effective
at lowering CMV to below the limits of assay detection. Approximately
two-thirds of patients across the maribavir treatment groups achieved
undetectable plasma CMV DNA (viral load) within 6 weeks. This product has been
granted orphan drug designation in both the US and EU. In late June, 2015
Shire conducted an end of Phase 2 meeting with the FDA and received further
clarity on the path forward. Based upon this feedback, Shire is considering
progressing the program into Phase 3 in 2016.
SHP625 for the treatment of cholestatic liver disease
SHP625 was acquired as part of the recent acquisition of Lumena. Shire is
currently conducting Phase 2 studies in the following indications: ALGS,
PFIC, PBC, and Primary Sclerosing Cholangitis. This product has been granted
orphan drug designation both in the US and EU.
On April 9, 2015 Shire announced that the 13-week Phase 2 IMAGO trial of SHP625
did not meet the primary or secondary endpoints in the study of 20 pediatric
patients with ALGS. Mean serum bile acid levels and pruritus at the end of the
study were lower in both SHP625 and placebo treated groups as compared to
baseline. However, in a post-hoc analysis, a positive correlation between
percent changes from baseline in serum bile acid levels and pruritis was
observed in the SHP625 treated group.
In late May 2015, Shire also received results from the CLARITY study, a 13
week, doubled blind, placebo-controlled Phase 2 study in combination with UDCA
in PBC. SHP625 did not meet the primary endpoint as measured by change in
pruritus or the secondary endpoint in level of liver disease as measured by the
ALP. However, there was a significant reduction in mean serum bile acid levels
versus placebo.
In June 2015, Shire received preliminary results from an interim analysis of
the INDIGO study, a 72 week open label Phase 2 study in PFIC. The interim
analysis was based on the first 12 subjects who completed 13 weeks of treatment
per protocol. SHP625 was well tolerated but there was no statistically
significant reduction in mean serum bile levels from baseline. A change from
baseline analysis was planned as there is no placebo treatment arm in this
study. The changes from baseline for pruritus did reach statistical
significance. 5 of the 20 patients who received the drug experienced sustained
decreases from baseline in serum bile acids ranging from 86 to 99% and also
experienced marked reductions in pruritus as evidenced by absence of or only
mild scratching at their last evaluation in this ongoing study. In this subset
of patients where biomarkers of liver damage were elevated at baseline, as
assessed by ALT and Total Bilirubin, these values were normalized during the
study. Shire continues to analyze the totality of the data to determine an
appropriate path forward.
SHP616 (CINRYZE) for the treatment of Acute Antibody Mediated Rejection ("AMR")
A Phase 2 study for the treatment of AMR with SHP616 was completed in 18
patients. Shire has received FDA and EMA feedback and submitted an
investigational new drug application ("IND") in the second quarter of 2015.
Shire plans to initiate a Phase 2/3 study in the second half of 2015.
Phase 1
SHP611 for the treatment of Metachromatic Leukodystrophy ("MLD")
SHP611 is in development as recombinant human arylsulfatase A ("rASA")
delivered intrathecally every other week for the treatment of the late
infantile form of MLD. This product has been granted orphan drug designation in
the US and the EU. The Group initiated a 24 patient Phase 1/2 clinical trial in
August 2012. The primary endpoint of this trial is to determine the safety of
ascending doses of rASA over 40 weeks. The secondary endpoint focuses on
decline in motor function as defined by change in baseline Gross Motor Function
Measure ("GMFM-88"). Exploratory endpoints include change from baseline in
cerebrospinal fluid sulfatide levels and change from baseline in the total MLD
severity score based on brain Magnetic Resonance Imaging ("MRI"). The trial
is currently ongoing, but top line interim results were available in late
April. Based upon interim data for the first 18 patients, SHP611 was safe and
well tolerated at all doses. In addition, while not statistically significant
and despite a decline in GMFM-88 score across all doses, the highest dose
caused a slower decline over the 40 week study period compared to the lower
dose treatment groups. The higher dose group also showed encouraging data in
reduced MLD MRI score and reductions of CSF sulfatide. Shire will continue to
analyze these interim results and determine an optimal path forward in this
development program.
SHP616 (CINRYZE) life cycle management and new uses
Shire is pursuing a subcutaneous formulation of CINRYZE for routine prophylaxis
against HAE attacks in adolescent and adult patients. In addition to
initiating a Phase 2/3 study (discussed above), Shire is considering pursuing
development in Neuromyelitis Optica ("NMO"). Shire received feedback from the
FDA in the second quarter of 2015 on NMO and is in the process of determining
an optimal path forward. After further investigation, Shire has decided not to
pursue development in Paroxysmal Nocturnal Hemoglobinuria ("PNH").
SHP622 for the treatment of Friedreich's Ataxia ("FA")
SHP622 is in development for the treatment of Friedreich's Ataxia and was
acquired as part of the acquisition of ViroPharma. This product is a naturally
occurring small molecular weight drug compound that prevents oxidative stress
OX1 (indole-3-propionic acid) by a combination of hydroxyl radical scavenging
activity and metal chelation. Phase 1 studies in healthy adults were completed
in 2010. The drug was found to be generally well tolerated, and the
pharmacokinetics revealed that the drug was rapidly absorbed and distributed in
the body after oral administration. A Phase 1b trial of SHP622 in adults with
FA is ongoing.
SHP626 for the treatment of nonalcoholic steatohepatitis ("NASH")
SHP626 was acquired as part of the acquisition of Lumena and is in development
for the treatment of NASH, a common and often "silent" liver disease
characterized by fat deposits in the liver and inflammation which can progress
to significant fibrosis. A US IND was approved by the FDA in the fourth
quarter of 2014, and a Phase 1b multiple dose trial is ongoing.
SHP627 for the treatment of focal segmental glomerulosclerosis ("FSGS")
On July 4, 2014 Shire completed its acquisition of Fibrotech, an Australian
biopharmaceutical company developing a new class of orally available drugs with
a novel mechanism of action which has the potential to address both the
inflammatory and fibrotic components of disease processes. SHP627 has completed
a Phase 1a study in healthy volunteers and is currently in a Phase 1b study in
patients with diabetic nephropathy. The first Phase 2 study is expected to be
initiated in FSGS patients in 2017.
SHP631 for the treatment of both the CNS and somatic manifestations in patients
with MPS II
On July 23, 2014, Shire announced a worldwide licensing and collaboration
agreement with ArmaGen for SHP631 (also known as AGT-182). SHP631 is an
investigational enzyme replacement therapy for the potential treatment of both
the central nervous system and somatic manifestations in patients with MPS II.
SHP631 is designed to take advantage of the body's natural system for
transporting products across the blood brain barrier by using the same receptor
that delivers insulin to the brain. SHP631 has received orphan drug designation
from both the FDA and the EMA. In the second quarter of 2015, ArmaGen initiated
a Phase 1 sequential, open-label, dose escalation, multi-dose study in adults
with Hunter syndrome. At least two dose levels, assuming tolerability, are
planned sequentially, and the trial is expected to deliver information on the
possible effect of SHP631 on CSF levels of glycosaminogycan substrate, which
will be important in determining the next steps in clinical development.
Other development projects
A number of additional early development projects, focused on Rare Diseases,
are underway in various stages of pre-clinical development.
Going Concern
As stated in Note 1 to the consolidated financial statements, the Directors
have a reasonable expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future. Thus, they continue to
adopt the going concern basis of accounting in preparing the half-yearly
report.
Results of operations for the six months to June 30, 2015 and June 30, 2014
The financial information contained within the Half Yearly Report has been
prepared under US GAAP, being the accounting principles under which the Group
will prepare or prepared its annual financial statements for the years ended
December 31, 2015 and 2014.
Total revenues
The following table provides an analysis of the Group's total revenues by
source:
6 months to 6 months to
June 30, June 30,
2015 2014 change
$'M $'M %
__________________ __________________ __________________
Product sales 2,899.4 2,777.7 +4
Royalties 141.9 61.5 +131
Other revenues 4.7 9.7 -52
__________________ __________________ __________________
Total 3,046.0 2,848.9 +7
__________________ __________________ __________________
Product sales
The following table provides an analysis of the Group's key product sales:
6 months to 6 months to Product Non-GAAP CER US Exit market
June 30, June 30, sales prescription
2015 2014 growth Growth(4) growth(1) share(1)
$'M $'M % % % %
Net product sales:
VYVANSE 841.6 710.7 +18 +20 +7 +16
LIALDA/MEZAVANT 306.4 272.5 +12 +15 +11 +35
ELAPRASE 271.5 280.7 -3 +8 n/a(2) n/a(2)
CINRYZE 286.9 215.5 +33 +35 n/a(2) n/a(2)
REPLAGAL 214.4 244.8 -12 +1 n/a(3) n/a(3)
FIRAZYR 196.6 163.9 +20 +23 n/a(2) n/a(2)
ADDERALL XR 181.7 184.9 -2 -1 +14 +5
VPRIV 171.1 176.6 -3 +5 n/a(2) n/a(2)
PENTASA 145.0 135.5 +7 +7 -7 +12
FOSRENOL 89.2 88.1 +1 +9 -11 +3
GATTEX/REVESTIVE 52.2 - n/a n/a n/a(2) n/a(2)
XAGRID 48.1 55.0 -13 +3 n/a(2) n/a(2)
INTUNIV 26.9 182.3 -85 -85 -64 +1
NATPARA 5.9 - n/a n/a n/a(2) n/a(2)
Other product sales 61.9 67.2 -8 +3 n/a n/a
Total product sales 2,899.4 2,777.7 +4
(1) Data provided by IMS Health National Prescription Audit ("IMS NPA") relates
solely to US-based prescriptions. Exit market share represents the average
monthly market share in the month ended June 30, 2015.
(2) IMS NPA Data not available.
(3) Not sold in the US in the six months to June 30, 2015.
(4) The Group's management analyzes product sales and revenue growth for
certain products sold in markets outside of the US on a constant exchange rate
("CER") basis, so that product sales and revenue growth can be considered
excluding movements in foreign exchange rates. Product sales and revenue growth
on a CER basis is a Non GAAP financial measure ("Non GAAP CER"), computed by
comparing 2015 product sales and revenues restated using 2014 average foreign
exchange rates to 2014 actual product sales and revenues. Average exchange
rates for the six months to June 30, 2015 were $1.53:£1.00 and $1.13:€1.00
(2014: $1.67:£1.00 and $1.37:€1.00).
VYVANSE - ADHD
VYVANSE product sales grew strongly in the six months to June 30, 2015 (up 18%
compared to the same period in 2014) primarily due to a price increase(1) taken
since 2014, higher prescription demand, stocking in the first half of 2015 and
to a slightly lesser extent growth in international sales.
Litigation proceedings regarding VYVANSE are ongoing. Further information about
this litigation can be found in note 15 of this Half Yearly Report.
LIALDA/MEZAVANT - Ulcerative Colitis
Product sales for LIALDA/MEZAVANT in the six months to June 30, 2015 were up
12% (up 15% on a Non GAAP CER basis), primarily due to higher US prescription
demand and the effect of a price increase(1) taken since 2014. These factors
were partially offset by higher sales deductions as a percentage of product
sales and the negative impact of foreign exchange movements.
Litigation proceedings regarding LIALDA are ongoing. Further information about
this litigation can be found in note 15 of this Half Yearly Report.
ELAPRASE - Hunter syndrome
ELAPRASE product sales in the six months to June 30, 2015 were down 3% compared
to the same period in 2014 (up 8% on a Non GAAP CER basis). Continued growth in
the number of treated patients and the benefit of a price increase(1) taken
since 2014 was more than offset by the negative impact of foreign exchange
movements.
Litigation proceedings regarding ELAPRASE are ongoing. Further information
about this litigation can be found in note 15 of this Half Yearly Report.
CINRYZE -prophylactic treatment of HAE
Shire acquired CINRYZE through its acquisition of ViroPharma in the first
quarter of 2014. CINRYZE product sales in the six months to June 30, 2015 were
up 33% compared to the same period in 2014 (17% on a proforma basis(2))
primarily due to continued growth in the number of patients on therapy and to a
lesser extent the benefit of a price increase(1) taken since 2014.
REPLAGAL - Fabry disease
REPLAGAL sales were down 12% (up 1% on a Non GAAP CER basis) in the six months
to June 30, 2015 compared to the same period in 2014 driven primarily by the
negative impact of foreign exchange movements.
FIRAZYR - acute treatment of HAE
FIRAZYR product sales grew strongly up 20% (up 23% on a Non GAAP CER basis)
compared to the same period in 2014. This was primarily due to growth in
patients on therapy and to a lesser extent the effect of a price increase(1)
taken since 2014. These factors were partially offset by the negative impact of
foreign exchange movements.
ADDERALL XR- ADHD
ADDERALL XR product sales decreased (down 2%) in the six months to June 30,
2015, as increased prescription demand (up 14%) was more than offset by the
effect of higher sales deductions as a percentage of product sales.
VPRIV - Gaucher disease
VPRIV product sales in the six months to June 30, 2015 were down 3% (up 5% on a
Non GAAP CER basis), reflecting the negative impact of foreign exchange
movements partially offset by higher unit sales from an increase in the number
of patients on therapy.
PENTASA - Ulcerative Colitis
PENTASA product sales increased in the six months to June 30, 2015 (up 7%)
driven by price increases(1) taken since 2014, partially offset by a decrease
in US prescription demand and higher sales deductions as a percentage of
product sales.
GATTEX/REVESTIVE - Short Bowel Syndrome ("SBS")
Shire acquired GATTEX/REVESTIVE through its acquisition of NPS Pharma on
February 21, 2015, and has recorded sales of $52 million (up 60% on a proforma
basis(3)) for the period subsequent to acquisition.
INTUNIV- ADHD
INTUNIV product sales were down 85% in the six months to June 30, 2015
reflecting the impact of generic competitors in December 2014 and June 2015,
which resulted in lower prescription demand and significantly higher sales
deductions as a percentage of product sales.
NATPARA - Hypoparathyroidism
Shire made NATPARA available on April 1, 2015, after acquiring the product
through its acquisition of NPS Pharma. In the first half of 2015 sales of $6
million were recorded.
(1) The actual net effect of price increases on current period net sales
compared to the comparative period is difficult to quantify due to the various
managed care rebates, Medicaid discounts, other discount programs in which the
Group participates and fee for service agreements with wholesalers customers.
(2) 2014 Proforma revenues include revenues recorded by ViroPharma, prior to
the acquisition of ViroPharma by Shire on January 24th 2014.
(3) Proforma revenues include revenues recorded by NPS Pharma, prior to the
acquisition of NPS Pharma by Shire on February 21st 2015.
Royalties
The following table provides an analysis of Shire's royalty income:
6 months to 6 months to
June 30, June 30,
2015 2014 Change
$'M $'M %
____________ ____________ ___________
SENSIPAR 45.2 - n/a
INTUNIV 27.8 - n/a
FOSRENOL 19.2 22.2 -14
3TC and ZEFFIX 18.0 15.8 +14
ADDERALL XR 15.1 13.5 +12
Other 16.6 10.0 +66
____________ ____________ __________
Total royalties 141.9 61.5 +131
____________ ____________ __________
Royalties in the first half of 2015 are higher than the first half of 2014 due
to the inclusion of royalty income receivable from Amgen for SENSIPAR following
the acquisition of NPS Pharma by Shire, and the inclusion of royalties
receivable from Actavis on its generic sales of INTUNIV.
Cost of product sales
Cost of product sales was $455.8 million for the six months to June 30, 2015
(16% of product sales), down from $506.5 million in the corresponding period in
2014 (18% of product sales). Cost of product sales as a percentage of product
sales was two percentage points lower compared to the same period in 2014 due
to lower charges in relation to the unwind of the fair value adjustment on
inventories acquired in business combinations.
For the six months to June 30, 2015 cost of product sales included depreciation
of $24.8 million (2014: $28.0 million).
R&D
R&D expenditure increased to $969.6 million for the six months to June 30, 2015
(33% of product sales), compared to $597.4 million in the corresponding period
in 2014 (22% of product sales). R&D expenditure in 2015 includes impairment
charges of $346.6 million relating to the SHP625 IPR&D intangible asset, due to
a lower probability of regulatory approval following trial results, and $176.7
million relating to the SHP608 IPR&D intangible asset, following preclinical
toxicity findings. In 2014 R&D expenditure included impairment charges of
$166.0 million related to the SHP602 IPR&D intangible asset, following the
decision to place the program on clinical hold and $22.0 million related to the
SHP613 IPR&D intangible asset, following the decision to discontinue further
development of the asset. Excluding these impairment charges, R&D expenditure
in the six months to June 30, 2015 increased by 9% or by $36.9 million, due to
the first time inclusion of NPS Pharma's R&D costs and continued investment in
existing pipeline programs.
R&D in the six months to June 30, 2015 included depreciation of $11.7 million
(2014: $11.6 million).
SG&A
SG&A expenditure increased to $1,133.9 million (39% of product sales) for the
six months to June 30, 2015 from $926.5 million (33% of product sales) in the
corresponding period in 2014 due to increased investment behind launches,
including the successful launch of VYVANSE for the treatment of moderate to
severe BED in adults, the first time inclusion of NPS Pharma's SG&A costs from
February 21, 2015, and higher intangible asset amortization.
For the six months to June 30, 2015 SG&A included depreciation of $35.7 million
(2014: $41.9 million) and amortization of $219.6 million (2014: $119.0
million).
Gain on sale of product rights
For the six months to June 30, 2015 Shire recorded a net gain on sale of
product rights of $12.3 million (2014: $40.2 million). The gain in 2015
primarily relates to the re-measurement of contingent consideration receivable
from the divestment of DAYTRANA. The gain in 2014 related to the sale of
CALCICHEW trademarks to Takeda and the re-measurement of contingent
consideration receivables from the divestment of DAYTRANA.
Reorganization costs
For the six months to June 30, 2015 Shire recorded reorganization costs of
$28.5 million (2014: $95.2 million), related to the One Shire reorganization.
Integration and acquisition costs
For the six months to June 30, 2015 Shire recorded a net credit for integration
and acquisition costs of $136.7million (2014: a charge of $118.7 million),
comprising costs of $119.0 million primarily related to the acquisition and
integration of NPS Pharma offset by a net credit of $255.7 million relating to
the change in fair values of contingent consideration liabilities. The change
in fair value of contingent consideration liabilities in the six months to June
30, 2015 relates principally to SHP625 (acquired with Lumena) and SHP608
(acquired with Lotus Tissue Repair).
In the six months to June 30, 2014 the charge comprised costs of $97.3 million
relating to the acquisition and integration of ViroPharma and a net charge of
$21.4 million relating to the change in fair values of contingent liabilities.
Interest expense
For the six months to June 30, 2015 Shire incurred interest expense of $20.9
million (2014: $18.9 million), primarily related to interest and amortization
of financing fees incurred on borrowings to fund the NPS Pharma acquisition.
Interest expense in 2014 principally related to interest and amortization of
issue costs incurred on borrowings to fund the ViroPharma acquisition.
Taxation
The effective rate of tax for the six months to June 30, 2015 was 2% (2014:
-19%).
The effective rate of tax for the six months to June 30, 2015 is low primarily
due to the reduction in deferred tax liabilities in relation to the impairment
of IPR&D intangible assets, the re-measurement of uncertain tax positions
relating to ongoing tax audits and the release of certain valuation allowances
all recognized during the first half.
The effective rate of tax in the six months to June 30, 2014 was negative
primarily due to the recognition of a net tax credit in the first half of 2014
in relation to the settlement of tax positions with the Canadian revenue
authorities.
Discontinued operations
The loss from discontinued operations for the six months to June 30, 2015 was
$7.0 million net of tax (2014: $27.9 million) relating to costs associated with
the divestment of the DERMAGRAFT business.
Financial condition at June 30, 2015 and December 31, 2014
Cash & cash equivalents
Cash and cash equivalents decreased by $2,918.4 million to $64.0 million at
June 30, 2015 (December 31, 2014: $2,982.4 million), primarily due to the use
of existing cash and cash equivalents to fund the acquisitions of NPS Pharma
and Meritage.
Accounts receivable, net
Accounts receivable, net increased by $64.1 million to $1,099.2 million at June
30, 2015 (December 31, 2014: $1,035.1 million), primarily due to the inclusion
of NPS Pharma's accounts receivable and an increase in revenue. Days sales
outstanding increased to 46 days (December 31, 2014: 43 days).
Inventories
Inventories increased by $88.0 million to $632.8 million at June 30, 2015
(December 31, 2014: $544.8 million), primarily due to the inventories acquired
as part of the acquisition of NPS Pharma.
Goodwill
Goodwill increased by $1,698.3 million to $4,173.2 million at June 30, 2015
(December 31, 2014: $2,474.9 million), principally due to the acquisitions of
NPS Pharma and Meritage.
Other intangible assets, net
Other intangible assets increased by $4,376.0 million to $9,310.4 million at
June 30, 2015 (December 31, 2014: $4,934.4 million), principally due to the
intangible assets acquired with NPS Pharma and Meritage, offset by IPR&D
intangible asset impairment charges and intangible asset amortization.
Short term borrowings
Short term borrowings increased by $1,379.9 million to $2,229.5 million at June
30, 2015 (December 31, 2014: $850.0 million), reflecting the utilization of
short term debt facilities to partially fund the acquisition of NPS Pharma and
the recognition of secured non-recourse debt liabilities assumed as part of the
NPS Pharma acquisition.
Other current liabilities
Other current liabilities decreased by $117.0 million to $145.5 million at June
30, 2015 (December 31, 2014: $262.5 million) principally due to the reduction
in the fair value of contingent consideration payable associated with the
SHP625 IPR&D intangible asset.
Non-current deferred tax liabilities
Non-current deferred tax liabilities increased by $1,597.8 million to $2,808.4
million at June 30 2015 (December 31, 2014: $1,210.6 million) primarily due to
deferred tax liabilities arising on intangible assets partially offset by
deferred tax assets arising on tax attributes both acquired with NPS Pharma and
Meritage.
Other non-current liabilities
Other non-current liabilities decreased by $18.0 million to $718.7 million at
June 30, 2015 (December 31, 2014: $736.7 million) principally due the reduction
in the fair value of contingent consideration payable associated with the
SHP608 IPR&D intangible asset, offset by the recognition of contingent
consideration payable in respect of the Meritage acquisition.
Liquidity and capital resources
General
The Group's funding requirements depend on a number of factors, including the
timing and extent of its development programs; corporate, business and product
acquisitions; the level of resources required for the expansion of certain
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 business combinations, in-licenses and
collaborative projects; the timing and quantum of tax and dividend payments;
the timing and quantum of purchases by the Employee Benefit Trust of Shire
shares in the market to satisfy awards granted under Shire's employee share
plans; and the amount of 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 $64.0 million of cash and cash equivalents at
June 30, 2015.
Shire has a revolving credit facility of $2,100 million which matures in 2019,
$920 million of which was utilized as June 30, 2015 to partially finance the
purchase price paid in respect of Shire's acquisition of NPS Pharma (including
certain related costs).
In connection with its acquisition of NPS Pharma, on January 11, 2015 the Group
also entered into a $850 million term loan facility agreement, which matures on
January 10, 2016, with, among others, Citi Global Markets Limited (acting as
mandated lead arranger and bookrunner) (the "2015 Facility Agreement"). At June
30, 2015 the 2015 Facility Agreement was fully utilized and recorded within
short term borrowings. The Group also assumed non-recourse secured debt
obligations as part of the NPS Pharma acquisition with a carrying value of
$83.8 million as at June 30, 2015. See note 13 of this Half Yearly Report for
details.
In connection with its acquisition of ViroPharma, on November 11, 2013 the
Group also entered into a $2,600 million term loan facilities agreement with,
among others, Morgan Stanley Bank International Limited (acting as lead
arranger and agent) (the "2013 Facilities Agreement"). Amounts drawn under the
2013 Facilities Agreement were subsequently reduced to $400 million. At June
30, 2015 the 2013 Facilities Agreement comprises a $400 million term loan
facility which matures on November 11, 2015, and was fully utilized and
recorded within short term borrowings.
Shire has access to certain short term uncommitted lines of credit which it
utilizes from time to time to provide short term flexibility in cash
management. At June 30, 2015, $50 million was drawn under such facilities.
Financing
Shire anticipates that its operating cash flow together with available cash,
cash equivalents and the RCF will be sufficient to meet its anticipated future
operating expenses, capital expenditures, tax and interest payments, lease
obligations, repayment of the term loans and milestone payments as they become
due over the next twelve months.
If the Group decides to acquire other businesses, it expects to fund these
acquisitions from cash resources, the RCF, and through new borrowings or the
issuance of new equity if necessary.
Sources and uses of cash
The following table provides an analysis of the Group's gross and net (debt)/
cash position (excluding restricted cash), as at June 30, 2015 and December 31,
2014:
June 30, December 31,
2015 2014
$'M $'M
_________________ _________________
Cash and cash equivalents(1) 64.0 2,982.4
_________________ _________________
Long term borrowings (73.9) -
Short term borrowings (2,229.9) (850.0)
Other debt (13.6) (13.7)
_________________ _________________
Total debt (2,317.4) (863.7)
_________________ _________________
Net (debt)/cash(2) (2,253.4) 2,118.7
_________________ _________________
1. Substantially all of the Group's cash and cash equivalents are held by
foreign subsidiaries (i.e, those subsidiaries incorporated outside of
Jersey, Channel Islands, the jurisdiction of incorporation of Shire plc,
Shire's holding company). The amount of cash and cash equivalents held by
foreign subsidiaries has not had, and is not expected to have, a material
impact on the Group's liquidity and capital resources.
2. Net(debt)/ cash is a Non-GAAP measure. The Group believes that Net (debt)/
cash is a useful measure as it indicates the level of borrowings after
taking account the cash and cash equivalents that could be utilized to pay
down the outstanding borrowings.
Cash flow activity
Net cash provided by operating activities in the six months to June 30, 2015
decreased by $66.2 million or 6% to $1,013.9 million (2014: $1,080.1 million),
as higher cash receipts from gross product sales was held back by the cash
outflows related to the acquisition and integration of NPS Pharma. Net cash
provided by operating activities in the six months to June 30, 2014 also
benefited from a $248 million repayment received from the Canadian revenue
authorities.
Net cash used in investing activities was $5,234.1 million in the six months to
June 30, 2015, principally relating to the cash paid for the acquisition of NPS
Pharma of $5,220 million (less cash acquired with NPS Pharma of $42 million)
and for the acquisition of Meritage of $75 million.
Net cash used in investing activities was $3,938.1 million in the six months to
June 30, 2014, principally relating to the cash paid for the acquisition of
ViroPharma of $3,997 million (net of cash acquired with ViroPharma of $233
million) and for the acquisition of Lumena of $300 million (net of cash
acquired with Lumena of $46 million).
Net cash provided by financing activities was $1,302.5 million for the six
months to June 30, 2015, principally due to the drawings, net of subsequent
repayments, made under Shire's RCF, 2015 Facility Agreement and short term
credit lines to partially fund the NPS Pharma acquisition.
Net cash provided by financing activities was $773.3 million for the six months
to June 30, 2014, principally due to the drawings, net of subsequent
repayments, made under the RCF and Facilities to partially fund the ViroPharma
acquisition. In addition the Group paid cash of $551.5 million to settle the
convertible debt assumed with ViroPharma, received cash of $346.7 million upon
settlement of a purchased call option acquired with ViroPharma and made a
dividend payment of $99.6 million.
Obligations and commitments
Other than the borrowings incurred to finance, or assumed following, the
acquisition of NPS Pharma, as outlined above, during the six months to June 30,
2015 there have been no material changes to the Group's contractual obligations
previously disclosed in the Review of our Business in Shire's Annual Report and
Accounts for the year ended December 31, 2013.
Principal risks and uncertainties
The Group has adopted a risk management strategy designed to identify, assess
and manage the significant risks that it faces. While the Group aims to
identify and manage such risks, no risk management strategy can
provide absolute assurance against loss.
The principal risks and uncertainties affecting the Group for the remaining six
months of 2015 are those described under the headings below. It is not
anticipated that the nature of the principal risks and uncertainties disclosed
in the Annual Report and Accounts of Shire plc for the year ended December 31,
2014 will change in respect of the second half of 2015.
The Group's process for managing these risks is consistent with those processes
as outlined in the Annual Report and Accounts of Shire plc for the year ended
December 31, 2014. Some of these risks are specific to the Group and others are
more generally applicable to the healthcare industry in which the Group
operates. The Annual Report and Accounts are available on the Group's website,
www.shire.com.
In summary, these risks and uncertainties were as follows:
Risk factors related to the Group's business:
* The Group's products may not be a commercial success.
* Product sales from ADDERALL XR and INTUNIV are subject to generic
competition.
* The failure to obtain and maintain reimbursement, or an adequate level of
reimbursement, by third-party payrs in a timely manner for the Group's
products may impact future revenues, financial condition and results of
operations.
* The Group conducts its own manufacturing operations for certain of its
products and is reliant on third party contract manufacturers to
manufacture other products and to provide goods and services. Some of the
Group's products or ingredients are only available from a single approved
source for manufacture. Any disruption to the supply chain for any of the
Group's products 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 for some period of time.
* The manufacture of the Group's products is subject to extensive oversight
by various regulatory agencies. Regulatory approvals or interventions
associated with changes to manufacturing sites, ingredients or
manufacturing processes could lead to significant delays, an increase in
operating costs, lost product sales, an interruption of research activities
or the delay of new product launches.
* The Group has a portfolio of products in various stages of research and
development. The successful development of these products is highly
uncertain and requires significant expenditures and time, and there is no
guarantee that these products will receive regulatory approval.
* The actions of certain customers could affect the Group's ability to sell
or market products profitably. Fluctuations in buying or distribution
patterns by such customers can adversely affect the Group's revenues,
financial condition or 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 significant legal
costs and the payment of substantial compensation or fines.
* Adverse outcomes in legal matters and other disputes, including Shire's
ability to enforce and defend patents and other intellectual property
rights required for its business, could have a material adverse effect on
the Group's revenues, financial condition or results of operations.
* The Group faces intense competition for highly qualified personnel from
other companies and organizations. The Group is undergoing a corporate
reorganization and was the subject of an unsuccessful acquisition proposal
and the consequent uncertainty could adversely affect the Group's ability
to attract and/or retain the highly skilled personnel needed for the Group
to meet its strategic objectives.
* Failure to achieve the Group's strategic objectives with respect to the
acquisition of NPS Pharma may adversely affect the Group's financial
condition and results of operations.
General risk factors related to the Group and to the healthcare industry:
* The actions of governments, industry regulators and the economic
environments in which the Group operates may adversely affect its ability
to develop and profitably market its products.
* A slowdown of global economic growth, or economic instability of countries
in which the Group does business, could have negative consequences for the
Group's business and increase the risk of non-payment by the Group's
customers.
* The Group is subject to evolving and complex tax laws, which may result in
additional liabilities that may adversely affect the Group's financial
condition or results of operations.
* The failure of a strategic partner to develop and commercialize products
could result in delays in development, approval or loss of revenue.
* The failure to secure new products or compounds for development either
through in-licensing, acquisition or internal research and development
efforts, or the failure to realize expected benefits from acquisitions of
businesses or products, may have an adverse impact on the Group's future
results.
* The Group may fail to obtain, maintain, enforce or defend the intellectual
property rights required to conduct its business.
* The introduction of new products by competitors may impact future revenues.
* 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.
Directors' responsibility statement
The Directors confirm that this condensed consolidated set of financial
statements has been prepared in accordance with US GAAP and that the Half
Yearly Report herein includes a fair review of the information required by DTR
4.2.7R and DTR 4.2.8R.
The Directors of Shire plc are listed in Shire's Annual Report and Accounts for
the year ended December 31, 2014, with the exception of the following changes:
* David Stout stood down from the Board on April 28, 2015;
* Jeffrey Poulton was appointed Chief Financial Officer on April 30, 2015;
and
* Olivier Bohuon was appointed as a non-executive director on July 1, 2015.
Details of all current Directors are available on Shire's website at
www.shire.com.
On behalf of the Board:
Flemming Ornskov, M.D.
Chief Executive Officer
July 30,
2015
Jeffrey Poulton
Chief Financial Officer
July 30, 2015
SHIRE PLC
UNAUDITED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2015 2014
Notes $'M $'M
_________ _______________ _______________
ASSETS
Current assets:
Cash and cash equivalents 64.0 2,982.4
Restricted cash 74.0 54.6
Accounts receivable, net 5 1,099.2 1,035.1
Inventories 6 632.8 544.8
Deferred tax asset 455.4 344.7
Prepaid expenses and other current assets 8 221.6 221.5
_______________ _______________
Total current assets 2,547.0 5,183.1
Non-current assets:
Investments 50.0 43.7
Property, plant and equipment, net ("PP&E") 816.7 837.5
Goodwill 9 4,173.2 2,474.9
Other intangible assets, net 10 9,310.4 4,934.4
Deferred tax asset 107.9 112.1
Other non-current assets 25.3 46.4
_______________ _______________
Total assets 17,030.5 13,632.1
_______________ _______________
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses 11 1,939.7 1,909.4
Short-term borrowings 13 2,229.9 850.0
Other current liabilities 12 145.5 262.5
_______________ _______________
Total current liabilities 4,315.1 3,021.9
Non-current liabilities:
Long-term borrowings 13 73.9 -
Deferred tax liability 2,808.4 1,210.6
Other non-current liabilities 14 718.7 736.7
_______________ _______________
Total liabilities 7,916.1 4,969.2
_______________ _______________
Commitments and contingencies 15 - -
SHIRE PLC
UNAUDITED CONSOLIDATED BALANCE SHEETS (continued)
June 30, December 31,
2015 2014
Notes $'M $'M
___________ _____________ _____________
Equity:
Common stock of 5p par value; 1,000 million shares
authorized; and 600.5 million shares issued and 58.9 58.7
outstanding (2014: 1,000 million shares authorized;
and 599.1 million shares issued and outstanding)
Additional paid-in capital 4,409.3 4,338.0
Treasury stock: 9.8 million shares (2014: 10.6 (323.5) (345.9)
million shares)
Accumulated other comprehensive loss 16 (111.5) (31.5)
Retained earnings 5,081.2 4,643.6
________________ ________________
Total equity 9,114.4 8,662.9
________________ ________________
Total liabilities and equity 17,030.5 13,632.1
________________ ________________
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
SHIRE PLC
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
6 months to 6 months to
June 30, June 30,
2015 2014
Notes $'M $'M
Revenues: _______ _______________ _______________
Product sales 2,899.4 2,777.7
Royalties 141.9 61.5
Other revenues 4.7 9.7
_______________ _______________
Total revenues 3,046.0 2,848.9
_______________ _______________
Costs and expenses:
Cost of product sales 455.8 506.5
Research and development(1) 969.6 597.4
Selling, general and administrative(1) 1,133.9 926.5
Gain on sale of product rights (12.3) (40.2)
Reorganization costs 3 28.5 95.2
Integration and acquisition costs 4 (136.7) 118.7
_______________ _______________
Total operating expenses 2,438.8 2,204.1
_______________ _______________
Operating income from continuing operations 607.2 644.8
Interest income 2.6 19.2
Interest expense (20.9) (18.9)
Other income, net 2.3 8.0
_______________ _______________
Total other (expense)/income, net (16.0) 8.3
_______________ _______________
Income from continuing operations before income
taxes and equity in (losses)/earnings of equity 591.2 653.1
method investees
Income taxes 21 (13.3) 125.9
Equity in (losses)/earnings of equity method (0.9) 2.4
investees, net of taxes
_______________ _______________
Income from continuing operations, net of taxes 577.0 781.4
Loss from discontinued operations, net of taxes1 7 (7.0) (27.9)
_______________ _______________
Net income 570.0 753.5
_______________ _______________
1. Research and development ("R&D") includes IPR&D intangible asset impairment
charges of $523.3 million for the six months to June 30, 2015 (2014: $188.0
million). Selling, general and administrative ("SG&A") costs include
amortization of intangible assets relating to intellectual property rights
acquired of $219.6 million for the six months to June 30, 2015 (2014:
$119.0 million).
SHIRE PLC
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (continued)
6 months to 6 months to
June 30, June 30,
Notes 2015 2014
_________ _______________ _______________
Earnings per ordinary share -
basic
Earnings from continuing 97.8c 133.6c
operations
Loss from discontinued 1 (1.2c) (4.8c)
operations
_______________ _______________
Earnings per ordinary share - 96.6c 128.8c
basic
_______________ _______________
Earnings per ordinary share -
diluted
Earnings from continuing 97.3c 132.3c
operations
Loss from discontinued 1 (1.2c) (4.7c)
operations
_______________ _______________
Earnings per ordinary share - 96.1c 127.6c
diluted
_______________ _______________
Weighted average number of shares (millions):
Basic 19 589.8 585.3
Diluted 19 593.0 590.3
_______________ _______________
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
SHIRE PLC
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
6 months to 6 months to
June 30, June 30,
2015 2014
$'M $'M
_______________ _______________
Net income 570.0 753.5
Other comprehensive income:
Foreign currency translation adjustments (83.3) 10.2
Unrealized holding gain on available-for-sale
securities (net of taxes of $nil and $2.1 3.3 3.7
million)
_______________ _______________
Comprehensive income 490.0 767.4
_______________ _______________
The components of accumulated other comprehensive income as at June 30, 2015
and December 31, 2014 are as follows:
June 30, December 31,
2015 2014
$'M $'M
_______________ _______________
Foreign currency translation adjustments (109.0) (25.7)
Unrealized holding loss on available-for-sale securities, net (2.5) (5.8)
of taxes
________________ ________________
Accumulated other comprehensive loss (111.5) (31.5)
________________ ________________
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
SHIRE PLC
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(In millions of US dollars except share data)
Shire plc shareholders' equity
Common Accumulated
stock Common Additional Treasury other Retained Total
Number stock paid-in stock comprehensive earnings equity
of $'M capital $'M loss $'M $'M
shares $'M $'M
M's
As at January 1, 599.1 58.7 4,338.0 (345.9) (31.5) 4,643.6 8,662.9
2015
Net income - - - - - 570.0 570.0
Other
comprehensive - - - - (80.0) - (80.0)
loss, net of tax
Options 1.4 0.2 - - - - 0.2
exercised
Share-based - - 44.3 - - - 44.3
compensation
Tax benefit
associated with - - 27.0 - - - 27.0
exercise of
stock options
Shares released
by employee
benefit trust to - - - 22.4 - (22.2) 0.2
satisfy exercise
of stock options
Dividends - - - - - (110.2) (110.2)
As at June 30, 600.5 58.9 4,409.3 (323.5) (111.5) 5,081.2 9,114.4
2015
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Dividends per share
During the six months to June 30, 2015 Shire plc declared and paid dividends of
19.09 US cents per ordinary share (equivalent to 57.27 US cents per ADS)
totalling $110.2 million.
SHIRE PLC
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
6 months to 6 months to
June 30, June 30,
2015 2014
$'M $'M
_____________ _____________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 570.0 753.5
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 291.8 204.8
Share-based compensation 44.3 55.7
Change in fair value of contingent consideration (255.7) 21.4
Impairment of intangible assets 523.3 188.0
Write down of assets - 13.0
Gain on sale of product rights (12.3) (40.2)
Unwind of inventory fair value step-ups 16.3 72.5
Other, net 11.1 14.1
Movement in deferred taxes (79.4) 25.3
Equity in losses/(earnings) of equity method investees 0.9 (2.4)
Changes in operating assets and liabilities:
Increase in accounts receivable (84.9) (37.3)
Increase in sales deduction accruals 37.3 106.0
Increase in inventory (37.4) (11.7)
Decrease/(increase) in prepayments and other assets 28.4 (137.5)
Decrease in accounts and notes payable and other liabilities (39.8) (145.1)
______________ ______________
Net cash provided by operating activities(A) 1,013.9 1,080.1
______________ ______________
CASH FLOWS FROM INVESTING ACTIVITIES:
Movements in restricted cash (19.5) (11.9)
Purchases of subsidiary undertakings and businesses, net of (5,249.2) (4,018.3)
cash acquired
Purchases of non-current investments (4.9) (3.1)
Purchases of PP&E (39.8) (19.1)
Proceeds from short-term investments 67.0 56.3
Proceeds received on sale of product rights 8.8 52.8
Proceeds from disposal of non-current investments 4.4 8.0
Other, net (0.9) (2.8)
_____________ _____________
Net cash used in investing activities(B) (5,234.1) (3,938.1)
_____________ _____________
SHIRE PLC
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
6 months to 6 months to
June 30, June 30,
2015 2014
$'M $'M
____________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit, long term and short 2,925.6 2,310.8
term borrowings
Repayment of revolving line of credit and short term (1,530.9) (1,251.6)
borrowings
Repayment of debt acquired through business combinations - (551.5)
Proceeds from ViroPharma call options - 346.7
Payment of dividend (110.2) (99.6)
Excess tax benefit associated with exercise of stock options 27.0 29.1
Contingent consideration payments (4.5) (10.3)
Other, net (4.5) (0.3)
_____________ ___________
Net cash provided by financing activities(C) 1,302.5 773.3
_____________ ___________
Effect of foreign exchange rate changes on cash and cash (0.7) (1.1)
equivalents(D)
_____________ ___________
Net decrease in cash and cash equivalents(A+B+C+D) (2,918.4) (2,085.8)
Cash and cash equivalents at beginning of period 2,982.4 2,239.4
_____________ _____________
Cash and cash equivalents at end of period 64.0 153.6
_____________ ___________
Supplemental information associated with continuing
operations:
6 months to 6 months to
June 30, June 30,
2015 2014
$'M $'M
_____________ _____________
Interest paid (9.9) (7.7)
Income taxes repaid 65.2 248.0
Income taxes paid (65.2) (165.1)
_____________ _____________
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
SHIRE PLC
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) Basis of preparation
These interim financial statements of Shire plc and its subsidiaries
(collectively "Shire" or the "Group") and other financial information included
in this Half Yearly Report, are unaudited. They have been prepared in
accordance with generally accepted accounting principles in the United States
of America ("US GAAP") and US Securities and Exchange Commission ("SEC")
regulations for interim reporting.
The balance sheet as at December 31, 2014 was derived from audited financial
statements but does not include all disclosures required by US GAAP.
These interim financial statements should be read in conjunction with the
consolidated financial statements and accompanying notes included in Shire's
Annual Report and Accounts for the year to December 31, 2014.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with US GAAP have been condensed or omitted
from these interim financial statements. However, these interim financial
statements include all adjustments, consisting only of normal recurring
adjustments, which are, in the opinion of management, necessary to fairly state
the results of the interim period and the Group believes that the disclosures
are adequate to make the information presented not misleading. Interim results
are not necessarily indicative of results to be expected for the full year.
(b) Use of estimates in interim financial statements
The preparation of interim financial statements, in conformity with US GAAP and
SEC regulations, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
reported amounts of revenues and expenses during the reporting period.
Estimates and assumptions are primarily made in relation to the valuation of
intangible assets, sales deductions, income taxes (including provisions for
uncertain tax positions and the realization of deferred tax assets), provisions
for litigation and legal proceedings, contingent consideration receivable from
product divestments and contingent consideration payable in respect of business
combinations and asset purchases. If actual results differ from the Group's
estimates, or to the extent these estimates are adjusted in future periods, the
Group's results of operations could either benefit from, or be adversely
affected by, any such change in estimate.
(c) New accounting pronouncements
Adopted during the period
Reporting Discontinued Operations and Disclosures of Disposals of Components of
an Entity
In April 2014 the Financial Accounting Standards Board ("FASB") issued guidance
on the reporting of discontinued operations and disclosures of disposals of
components of an entity. The amendments in this update revise the definition of
discontinued operations by limiting discontinued operations reporting to
disposals of components of an entity that represent strategic shifts that have
(or will have) a major effect on an entity's operations and financial results.
The guidance requires expanded disclosures for discontinued operations which
provide users of financial statements with more information about the assets,
liabilities, revenues, and expenses of discontinued operations. The guidance
also requires an entity to disclose the pre-tax profit or loss of an
individually significant component of an entity that does not qualify for
discontinued operations reporting.
Shire adopted this guidance in the period, which will be effective for
discontinued operations occurring after January 1, 2015. The adoption of this
guidance did not impact the Group's consolidated financial position, results of
operations or cash flows.
To be adopted in future periods
Revenue from Contracts with Customers
In May 2014 the FASB and the International Accounting Standards Board (together
the "Accounting Standards Boards") issued a new accounting standard that is
intended to clarify and converge the financial reporting requirements for
revenue from contracts with customers. The core principle of the standard is
that an "entity recognizes revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services". To
achieve that core principle the Accounting Standards Boards developed a
five-step model (as presented below) and related application guidance, which
will replace most existing revenue recognition guidance in US GAAP.
Five-step model:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the
contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance
obligation.
The Accounting Standards Boards also issued new qualitative and quantitative
disclosure requirements as part of the new accounting standard which aims to
enable financial statement users to understand the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with customers.
In July 2015 the FASB decided to defer the effective date of the guidance by
one year. Based on this deferral, public entities would need to apply the new
guidance for annual reporting periods beginning after December 15, 2017, and
interim periods therein. The Group is currently evaluating the impact of
adopting this guidance.
Amendments to the Consolidation Analysis
In February 2015 the FASB issued guidance to respond to stakeholders' concerns
about the current accounting for consolidation of certain legal entities.
Financial statement users asserted that in certain situations in which
consolidation is ultimately required, deconsolidated financial statements are
necessary to better analyze the reporting entity's economic and operational
results. Previously, the FASB issued an indefinite deferral for certain
entities to partially address those concerns. However, the amendments in this
guidance rescind that deferral and address those concerns by making changes to
the consolidation guidance.
Under the amendments, all reporting entities are within the scope of Subtopic
810-10, Consolidation, including limited partnerships and similar legal
entities, unless a scope exception applies. The presumption that a general
partner controls a limited partnership has been eliminated. In addition, fees
paid to decision makers that meet certain conditions no longer cause decision
makers to consolidate a VIE in certain instances. The amendments place more
emphasis in the consolidation evaluation on variable interests other than fee
arrangements such as principal investment risk (for example, debt or equity
interests), guarantees of the value of the assets or liabilities of the VIE,
written put options on the assets of the VIE, or similar obligations, including
some liquidity commitments or agreements (explicit or implicit). Additionally,
the amendments reduce the extent to which related party arrangements cause an
entity to be considered a primary beneficiary.
The amendments are effective for public business entities for fiscal years, and
for interim periods therein, beginning after December 15, 2015. Early adoption
is permitted, including adoption in an interim period. The Group does not
expect the adoption of this guidance to have a material effect on its
consolidated financial position, results of operations and cash flows.
Simplifying the Presentation of Debt Issuance Costs
In April 2015 the FASB issued guidance to simplify the presentation of debt
issuance costs. The guidance requires that debt issuance costs related to a
recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt
discounts. The recognition and measurement guidance for debt issuance costs are
not affected by the amendments in this update. The amendments in this update
are effective for financial statements issued for fiscal years beginning after
December 15, 2015, and interim periods therein.
Early adoption of the amendments in this update is permitted for financial
statements that have not been previously issued. An entity should apply the new
guidance on a retrospective basis, wherein the balance sheet of each individual
period presented should be adjusted to reflect the period-specific effects of
applying the new guidance. Upon transition, an entity is required to comply
with the applicable disclosures for a change in an accounting principle. The
Group does not expect the adoption of this guidance to have a material effect
on its consolidated financial position, results of operations and cash flows.
Customer's Accounting for Fees Paid in a Cloud Computing Arrangement
In April 2015 the FASB issued guidance to simplify the customer's accounting
for fees paid in a cloud computing arrangement. The amendments provide guidance
to customers about whether a cloud computing arrangement includes a software
license. If a cloud computing arrangement includes a software license, then the
customer should account for the software license element of the arrangement
consistent with the acquisition of other software licenses. If a cloud
computing arrangement does not include a software license, the customer should
account for the arrangement as a service contract. The amendments will be
effective for annual periods, including interim periods within those annual
periods, beginning after December 15, 2015. Early adoption is permitted for all
entities. An entity can elect to adopt the guidance either a) prospectively to
all arrangements entered into or materially modified after the effective date
or b) retrospectively. The Group is currently evaluating the impact of adopting
this guidance.
(d) Going concern
Shire anticipates that its operating cash flow together with available cash,
cash equivalents and the RCF will be sufficient to meet its anticipated future
operating expenses, capital expenditures, tax and interest payments, lease
obligations, repayment of the term loans and milestone payments as they become
due over the next twelve months.
The Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future.
Accordingly, the Directors continue to adopt the going concern basis of
accounting in preparing the half-yearly report.
2. Business combinations
Acquisition of NPS Pharma
On February 21, 2015 Shire completed its acquisition of 100% of the outstanding
share capital of NPS Pharma. The acquisition-date fair value of cash
consideration paid on closing was $5,220 million.
The acquisition of NPS Pharma added GATTEX/REVESTIVE, approved in the US and EU
for the treatment of adults with short bowel syndrome ("SBS"), a rare and
potentially fatal gastrointestinal disorder and NATPARA/NATPAR approved in the
US for the treatment of hypoparathyroidism ("HPT"), a rare endocrine disease,
to Shire's portfolio of currently marketed products.
The acquisition of NPS Pharma has been accounted for as a business combination
using the acquisition method. The assets acquired and the liabilities assumed
from NPS Pharma have been recorded at their preliminary fair values at the date
of acquisition, being February 21, 2015. The Group's consolidated financial
statements include the results of NPS Pharma from February 21, 2015.
The amount of NPS Pharma's post-acquisition revenues and pre-tax losses
included in the Group's consolidated statement of income for the six months to
June 30, 2015 were $107.1 million and $159.9 million respectively. The pre-tax
loss includes charges on the unwind of inventory fair value adjustments of
$15.1 million, intangible asset amortization of $101.5 million and integration
costs of $60.7 million.
During the second quarter of 2015, within the measurement period, the Group
obtained both additional and improved information about the acquisition-date
fair value of NPS Pharma inventories. This information included: an assessment
and alignment of NPS Pharma's policy for classifying inventories as raw
material, work-in-progress or finished goods with that of Shire; insight into
the amount and carrying value of short-lived inventories; and insight into
inventories which were available for commercial sale that were previously
expensed by NPS Pharma as they were manufactured prior to the necessary
regulatory approval. The Group's preliminary allocation of the purchase price
to the assets acquired and liabilities assumed, including the measurement
period adjustment with respect to inventories and certain other immaterial
measurement period adjustments, is outlined below:
Preliminary
Fair value
$'M
ASSETS
Current assets:
Cash and cash equivalents 41.6
Short-term investments 67.0
Accounts receivable 33.4
Inventories 89.4
Deferred tax assets 156.3
Other current assets 11.1
_________
Total current assets 398.8
Non-current assets:
PP&E 4.8
Goodwill 1,679.4
Other intangible assets
- currently marketed products 4,640.0
- royalty rights (categorized as "Other amortized intangible assets" ) 353.0
_________
Total assets 7,076.0
_________
LIABILITIES
Current liabilities:
Accounts payable and other current liabilities 72.5
Short-term debt 27.4
Non-current liabilities:
Long-term debt, less current portion 78.9
Deferred tax liabilities 1,673.1
Other non-current liabilities 4.5
_________
Total liabilities 1,856.4
_________
Fair value of identifiable assets acquired and liabilities assumed 5,219.6
Consideration _________
Cash consideration paid 5,219.6
_________
The purchase price allocation is preliminary pending final determination of the
fair values of certain assets and liabilities. In particular the fair values of
intangible assets and current and deferred tax assets and liabilities are
preliminary pending receipt of the final valuations for those items. The final
determination of these fair values will be completed as soon as possible but no
later than one year from the acquisition date.
(a) Other intangible assets - currently marketed products
Other intangible assets totaling $4,640.0 million relate to intellectual
property rights acquired for NPS Pharma's currently marketed products,
primarily attributed to NATPARA/NATPAR, and GATTEX/REVESTIVE. The fair value of
the currently marketed products is preliminary and has been estimated using an
income approach, based on the present value of incremental after tax cash flows
attributable to each separately identifiable intangible asset.
The estimated useful lives of the NATPARA/NATPAR and GATTEX/REVESTIVE
intangible assets are 24 years, with amortization being recorded on a
straight-line basis.
(b) Other intangible assets - Royalty rights
Other intangibles totaling $353.0 million relate to the royalty rights arising
from the collaboration agreements with Amgen, Janssen and Kyowa Hakko Kirin.
Amgen markets cinacalcet HCl as Sensipar in the US and as Mimpara in the EU;
Janssen Pharmaceuticals markets tapentadol as Nucynta in the US; and Kyowa
Hakko Kirin markets cinacalcet HCI as Regpara in Japan, Hong Kong, Malaysia,
Macau, Singapore, and Taiwan. NPS Pharma is entitled to royalties from the
relevant net sales of these products.
The fair value of these royalty rights is preliminary and has been estimated
using an income approach, based on the present value of incremental after tax
cash flows attributable to each royalty right.
The estimated useful lives of these royalty rights range from 4 to 5 years
(weighted average 4 years), with amortization being recorded on a straight-line
basis.
(c) Goodwill
Goodwill arising of $1,679.4 million, which is not deductible for tax purposes,
includes the expected synergies that will result from combining the operations
of NPS Pharma with the operations of Shire; particularly those synergies
expected to be realized due to Shire's structure; intangible assets that do not
qualify for separate recognition at the time of the acquisition; and the value
of the assembled workforce.
In the six months to June 30, 2015 the Group expensed costs of $117.7 million,
relating to the acquisition and post-acquisition integration of NPS Pharma,
which have been recorded within Integration and acquisition costs in the
Group's consolidated statement of income.
Supplemental disclosure of pro forma information
The following unaudited pro forma financial information presents the combined
results of the operations of Shire and NPS Pharma as if the acquisition of NPS
Pharma had occurred as at January 1, 2014. The unaudited pro forma financial
information is not necessarily indicative of what the consolidated results of
operations actually would have been had the acquisition been completed at the
date indicated. In addition, the unaudited pro forma financial information does
not purport to project the future results of operations of the combined Group.
6 months to 6 months to
June 30, June 30,
2015 2014
$'M $'M
___________ ___________
Revenues 3,075.9 2,949.0
Net income from continuing operations 526.6 565.7
___________ ___________
Per share amounts:
Net income from continuing operations per share - basic 95.9c 96.6c
Net income from continuing operations per share - diluted 95.4c 95.8c
___________ ___________
The unaudited pro forma financial information above reflects the following pro
forma adjustments:
i. an adjustment to decrease net income by $107.2 million for the period to
June 30, 2014 to reflect acquisition costs incurred by Shire and NPS
Pharma, and increase net income by $107.2 million for the period to June
30, 2015 to eliminate acquisition costs incurred;
ii. an adjustment to decrease net income by $9.2 million for the period to June
30, 2014 to reflect charges on the unwind of inventory fair value
adjustments as acquisition date inventory is sold, and a corresponding
increase in net income for the period to June 30, 2015;
iii. an adjustment of $11.1 million in the period to June 30, 2014 to reflect
additional interest expense associated with the drawdown of debt to
partially finance the acquisition of NPS Pharma and the amortization of
related deferred debt issuance costs;
i. an adjustment to increase amortization expense by approximately $21.1
million in the period to June 30, 2015 and $83.6 million in the period to
June 30, 2014 related to amortization of the fair value of identifiable
intangible assets acquired and the elimination of NPS Pharma's historical
intangible asset amortization expense; and
The adjustments above are stated net of their tax effects, where applicable.
Acquisition of Meritage Pharma Inc. ("Meritage")
Prior to the acquisition of ViroPharma by Shire (see below), ViroPharma had
entered into an exclusive development and option agreement with Meritage, a
privately owned US company focusing on developing oral budesonide suspension
("OBS") as a treatment for eosinophilic esophagitis. Under the terms of this
agreement Meritage controlled and conducted all related research up to
achievement of pre-defined development success criteria at which point
ViroPharma had the option to acquire Meritage.
On February 18, 2015, following the exercise of the purchase option, Shire
acquired all the outstanding equity of Meritage. The acquisition date fair
value of the consideration totaled $166.9 million, comprising cash
consideration paid on closing of $74.8 million and the fair value of contingent
consideration payable of $92.1 million. The maximum amount of contingent cash
consideration which may be payable by Shire in future periods is $175.0 million
dependent upon achievement of certain clinical development and regulatory
milestones.
With the Meritage acquisition, Shire has acquired the global rights to
Meritage's Phase 3-ready compound, OBS, for the treatment of adolescents and
adults with eosinophilic esophagitis.
The acquisition of Meritage has been accounted for as a business combination
using the acquisition method. The assets and liabilities assumed from Meritage
have been recorded at their preliminary fair values at the date of acquisition,
being February 18, 2015. The Group's consolidated financial statements and
results of operations include the results of Meritage from February 18, 2015.
The purchase price allocation is preliminary pending the determination of the
fair values of certain assets and liabilities. The purchase price has been
allocated on a preliminary basis to the OBS IPR&D intangible asset ($175
million), net current assets assumed ($5.5 million), net non-current
liabilities assumed (including deferred tax liabilities) ($54.7 million) and
goodwill ($41.1 million). Goodwill arising of $41.1 million is not deductible
for tax purposes.
Unaudited pro forma financial information to present the combined results of
operations of Shire and Meritage is not provided as the impact of this
acquisition is not material to the Group's results of operations for any period
presented.
Acquisition of ViroPharma Incorporated ("ViroPharma")
On January 24, 2014 Shire completed its acquisition of 100% of the outstanding
share capital of ViroPharma. The acquisition-date fair value of cash
consideration paid on closing was $3,997 million.
The acquisition of ViroPharma added CINRYZE to Shire's portfolio of currently
marketed products. CINRYZE is a leading brand for the prophylactic treatment of
Hereditary Angioedema ("HAE") in adolescents and adults.
The acquisition of ViroPharma has been accounted for as a business combination
using the acquisition method. The assets acquired and the liabilities assumed
from ViroPharma have been recorded at their fair values at the date of
acquisition, being January 24, 2014. The Group's consolidated financial
statements include the results of ViroPharma from January 24, 2014.
The purchase price allocation was finalized in the fourth quarter of 2014. The
Group's allocation of the purchase price to the fair value of assets acquired
and liabilities assumed is outlined below:
Acquisition
date fair
value
$'M
Identifiable assets acquired and liabilities assumed
ASSETS
Current assets:
Cash and cash equivalents 232.6
Short-term investments 57.8
Accounts receivable 52.2
Inventories 203.6
Deferred tax assets 100.7
Purchased call option 346.7
Other current assets 50.9
_________
Total current assets 1,044.5
Non-current assets:
PP&E 24.7
Goodwill 1,655.5
Other intangible assets
- Currently marketed products 2,320.0
- In-Process Research and Development ("IPR&D") 315.0
Other non-current assets 10.4
_________
Total assets 5,370.1
_________
LIABILITIES
Current liabilities:
Accounts payable and other current liabilities 122.7
Convertible bond 551.4
Non-current liabilities:
Deferred tax liabilities 603.5
Other non-current liabilities 95.5
_________
Total liabilities 1,373.1
_________
Fair value of identifiable assets acquired and liabilities assumed 3,997.0
_________
Consideration
Cash consideration paid 3,997.0
_________
(a) Other intangible assets - currently marketed products
Other intangible assets totaled $2,320.0 million at the date of acquisition,
relating to intellectual property rights acquired for ViroPharma's then
currently marketed products, primarily attributed to CINRYZE, for the routine
prophylaxis against HAE attacks in adolescent and adult patients. Shire also
obtained intellectual property rights to three other commercialized products,
PLENADREN, an orphan drug for the treatment of adrenal insufficiency in adults,
BUCCOLAM, an oromucosal solution for the treatment of prolonged, acute, and
convulsive seizures in infants, toddlers, children and adolescents and
VANCOCIN, an oral capsule formulation for the treatment of C.
difficile-associated diarrhea ("CDAD"), which was divested by Shire in the
third quarter of 2014. The fair value of currently marketed products has been
estimated using an income approach, based on the present value of incremental
after tax cash flows attributable to each separately identifiable intangible
asset.
The estimated useful lives of the CINRYZE, PLENADREN and BUCCOLAM intangible
assets range from 10 to 23 years (weighted average 22 years), with amortization
being recorded on a straight-line basis.
(b) Other intangible assets - IPR&D
The IPR&D asset of $315.0 million relates to maribavir (now SHP620), an
investigational antiviral product for cytomegalovirus. The fair value of this
IPR&D asset was estimated based on an income approach, using the present value
of incremental after tax cash flows expected to be generated by this
development project after the deduction of contributory asset charges for other
assets employed in this project. The estimated cash flows have been probability
adjusted to take into account the stage of completion and the remaining risks
and uncertainties surrounding the future development and commercialization.
The major risks and uncertainties associated with the timely completion of the
acquired IPR&D project include the ability to confirm the efficacy of the
technology based on the data from clinical trials, and obtaining the relevant
regulatory approvals as well as other risks as described in the Annual Report
and Accounts of Shire plc for the year ended December 31, 2014. The valuation
of IPR&D has been based on information available at the time of the acquisition
(and information obtained during the measurement period) and on expectations
and assumptions that (i) have been deemed reasonable by the Group's management
and (ii) are based on information, expectations and assumptions that would be
available to a market participant. However, no assurance can be given that the
assumptions and events associated with such assets will occur as projected. For
these reasons, the actual cash flows may vary from forecast future cash flows.
The estimated probability adjusted after tax cash flows used in fair valuing
other intangible assets have been discounted at rates ranging from 9.5% to
10.0%.
(c) Goodwill
Goodwill arising of $1,655.5 million, which is not deductible for tax purposes,
includes the expected operational synergies that will result from combining the
commercial operations of ViroPharma with those of Shire (valued at
approximately $400 million); other synergies expected to be realized due to
Shire's structure; intangible assets that do not qualify for separate
recognition at the time of the acquisition; and the value of the assembled
workforce.
3. Reorganization costs
One Shire business reorganization
On May 2, 2013, the Group initiated the reorganization of its business to
integrate the three divisions into a simplified One Shire organization in order
to drive future growth and innovation.
In 2014 certain aspects of the One Shire program were temporarily put on hold
due to AbbVie's offer for Shire, which was terminated in October 2014.
Subsequent to the termination of AbbVie's offer, Shire announced on November
10, 2014 its plans to relocate over 500 positions to Lexington Massachusetts
from its Chesterbrook, Pennsylvania, site and establish Lexington as the
Group's US operational headquarters in continuation of the One Shire efficiency
program. This relocation will streamline business globally through two
principal locations, Massachusetts and Switzerland, with support from regional
and country-based offices around the world.
In the six months to June 30, 2015 the Group incurred reorganization costs
totaling $28.5 million, respectively relating to employee involuntary
termination benefits and other reorganization costs. Reorganization costs of
$274.0 million have been incurred since May 2013. The One Shire reorganization
is expected to be substantially completed by the end of 2015. Currently, the
Group estimates that further costs in respect of the One Shire reorganization
of approximately $102 million will be expensed as incurred during 2015.
The liability for reorganization costs arising from the One Shire business
reorganization at June 30, 2015 is as follows:
Opening Amount Closing
liability liability at
at January 1, charged to June 30,
re-
2015 organization Paid/Utilized 2015
$'M $'M $'M $'M
___________ ____________ ___________ ___________
Involuntary termination benefits 38.0 19.7 (26.4) 31.3
Other reorganization costs - 8.8 (6.9) 1.9
___________ ___________ ___________ ___________
38.0 28.5 (33.3) 33.2
___________ ___________ ___________ ___________
At June 30, 2015 the closing reorganization cost liability was recorded within
accounts payable and accrued expenses.
4. Integration and acquisition costs
For the six months to June 30, 2015 Shire recorded a net credit to integration
and acquisition costs of $136.7 million. The net credit principally comprises
(i) costs related to the acquisition and integration of NPS Pharma ($117.7
million in the six months to June 30, 2015), offset by (ii) a net credit
relating to the change in the fair value of contingent consideration
liabilities of $255.7 million in the six months to June 30, 2015. The net
credit relating to the change in fair value of contingent consideration
liabilities principally relates to the acquisition of Lumena Pharmaceuticals,
Inc. ("Lumena"), reflecting a lower probability of success for the SHP625 asset
(for the treatment of cholestatic liver diseases) following the receipt of data
from certain Phase 2 studies, and the acquisition of Lotus Tissue Repair, Inc.
("Lotus Tissue Repair"), reflecting a lower probability of success for the
SHP608 asset (for the treatment of Dystrophic Epidermolysis Bullosa ("DEB")) as
a result of certain preclinical toxicity findings (see note 10 for further
details).
In the six months to June 30, 2014 Shire recorded integration and acquisition
costs of $118.7 million. In the six months to June 30, 2014 the charge
comprised $97.3 million relating to the acquisition and integration of
ViroPharma and a net charge on the fair value of contingent consideration
liabilities of $21.4 million (principally in relation to SARcode, as outlined
above, offset by credits in relation to the acquisition of FerroKin
BioSciences, Inc, reflecting the decision to place the Phase 2 clinical trial
for SHP602 on clinical hold).
5. Accounts receivable, net
Accounts receivable at June 30, 2015 of $1,099.2 million (December 31, 2014:
$1,035.1 million), are stated net of a provision for discounts and doubtful
accounts of $53.5 million (December 31, 2014: $48.5 million).
Provision for discounts and doubtful accounts:
2015 2014
$'M $'M
____________ ____________
As at January 1, 48.5 47.9
Provision charged to operations 186.6 163.1
Provision utilization (181.6) (165.7)
____________ ____________
As at June 30, 53.5 45.3
____________ ____________
At June 30, 2015 accounts receivable included $69.8 million (December 31, 2014:
$59.0 million) related to royalty income.
6. Inventories
Inventories are stated at the lower of cost or market. Inventories comprise:
June 30, December 31,
2015 2014
$'M $'M
___________ ___________
Finished goods 136.8 136.0
Work-in-progress 383.1 305.3
Raw materials 112.9 103.5
___________ ___________
632.8 544.8
___________ ___________
7. Results of discontinued operations
Following the divestment of the Group's DERMAGRAFT business in January 2014,
the operating results associated with the DERMAGRAFT business have been
classified as discontinued operations in the consolidated statements of income
for all periods presented. In the six months to June 30, 2015 the Group
recorded a loss, net of tax of $7.0 million (2014: $27.9 million) respectively,
primarily relating to costs associated with the divestment.
8. Prepaid expenses and other current assets
June 30, December 31,
2015 2014
$'M $'M
______________ _____________
Prepaid expenses 57.9 36.9
Income tax receivable 107.7 121.5
Value added taxes receivable 17.4 13.8
Other current assets 38.6 49.3
______________ _____________
221.6 221.5
______________ _____________
9. Goodwill
June 30, December 31,
2015 2014
$'M $'M
____________ ____________
Goodwill arising on businesses acquired 4,173.2 2,474.9
____________ ____________
In the six months to June 30, 2015 the Group completed the acquisitions of NPS
Pharma and Meritage, which resulted in aggregate goodwill with a preliminary
value of $1,720.5 million (see Note 2 for details).
2015 2014
$'M $'M
____________ ____________
As at January 1, 2,474.9 624.6
Acquisitions 1,720.5 1,662.7
Foreign currency translation (22.2) (3.9)
____________ ____________
As at June 30, 4,173.2 2,283.4
____________ ____________
10. Other intangible assets, net
June 30, December 31,
2015 2014
$'M $'M
________________ ________________
Amortized intangible assets
Intellectual property rights acquired for currently 9,416.1 4,816.9
marketed products
Other intangible assets(1) 375.0 30.0
________________ ________________
9,791.1 4,846.9
Unamortized intangible assets
Intellectual property rights acquired for IPR&D 1,182.2 1,550.0
________________ ________________
10,973.3 6,396.9
Less: Accumulated amortization (1,662.9) (1,462.5)
________________ ________________
9,310.4 4,934.4
________________ ________________
1. Other intangible assets primarily comprises of royalty right assets
acquired with NPS Pharma.
The change in the net book value of other intangible assets for the six months
to June 30, 2015 and 2014 is shown in the table below:
Other intangible assets
2015 2014
$'M $'M
___________ ___________
As at January 1, 4,934.4 2,312.6
Acquisitions 5,167.8 3,321.4
Amortization charged (219.6) (119.0)
Impairment charges (523.3) (188.0)
Foreign currency translation (48.9) (1.5)
___________ ___________
As at June 30, 9,310.4 5,325.5
___________ ___________
In the six months to June 30, 2015 the Group acquired intangible assets
totaling $5,168 million, relating to the fair value of intangible assets for
currently marketed products and royalty right assets acquired with NPS Pharma
of $4,993 million and IPR&D assets of $175 million acquired with Meritage (see
Note 2 for further details).
The Group reviews its intangible assets for impairment whenever events or
circumstances suggest that their carrying value may not be recoverable. In the
six months to June 30, 2015 the Group identified indicators of impairment in
respect of its SHP625 (for the treatment of cholestatic liver disease), and
SHP608 (for the treatment of DEB) IPR&D assets.
The indicators of impairment related to SHP625 in the second quarter of 2015
included the results of two Phase 2 studies, comprising a 13-week study of 20
paediatric patients with Alagille syndrome ("ALGS"), a 13 week, double blind,
placebo-controlled trial in combination with ursodeoxycholic acid ("UDCA") for
patients with Primary Biliary Cirrhosis ("PBC"), and preliminary results from a
72 week open label Phase 2 study in Progressive Familial Intrahepatic
Cholestasis ("PFIC"). Although both the ALGS and PBC trials indicated a
reduction in bile serum acids in the SHP625 treated group, neither of these
trials met their primary or secondary endpoints. The interim analysis in the
PFIC trial was based on the first 12 subjects who completed 13 weeks of
treatment per protocol. There was no statistically significant reduction in
mean serum bile acid levels from baseline. A change from baseline analysis was
planned as there is no placebo treatment arm in this study. However, changes
from baseline for pruritus did reach statistical significance.
Following these trial results, the Group reviewed the recoverability of its
SHP625 IPR&D asset in the second quarter of 2015 and recorded an impairment
charge of $346.6 million (within R&D expenses in the consolidated statement of
income) to record the SHP625 IPR&D asset to its revised fair value of $120.4
million. This fair value was based on the revised discounted cash flow
forecasts associated with SHP625, which included a reduced probability of
achieving regulatory approval.
For SHP608, preclinical toxicity findings in the second quarter of 2015 have
led to a significant reduction in the probability of achieving regulatory
approval of this asset. As a result, the Group recorded an impairment charge of
$176.7 million within R&D expenses in the consolidated statement of income to
fully write off the SHP608 IPR&D asset.
The fair values of the related contingent consideration liabilities arising
from the Lumena and Lotus Tissue Repair acquisitions (through which Shire
acquired SHP625 and SHP608 respectively) have also been reduced, resulting in a
credit of $280.0 million being recorded in Integration and acquisition costs.
In the six months to June 30, 2014 the Group identified indicators of
impairment in respect of its SHP602 (iron chelating agent for the treatment of
iron overload secondary to chronic transfusion) and SHP613 (for the treatment
of improvement in patency of arteriovenous access in hemodialysis patients) IPR
&D assets. The Group therefore reviewed the recoverability of its SHP602 and
SHP613 IPR&D assets and recorded an impairment charge of $166.0 million and
$22.0 million, respectively within R&D expenses in the consolidated statement
of income to record the IPR&D assets to their revised fair value.
Management estimates that the annual amortization charge in respect of
intangible assets held at June 30, 2015 will be approximately $476 million for
each of the five years to June 30, 2020. Estimated amortization expense can be
affected by various factors including future acquisitions, disposals of product
rights, regulatory approval and subsequent amortization of acquired IPR&D
projects, foreign exchange movements and the technological advancement and
regulatory approval of competitor products.
11. Accounts payable and accrued expenses
June 30, December 31,
2015 2014
$'M $'M
______________ ______________
Trade accounts payable and accrued purchases 286.8 247.7
Accrued rebates - Medicaid 606.5 563.9
Accrued rebates - Managed care 310.7 318.2
Sales return reserve 137.5 131.7
Accrued bonuses 121.0 150.7
Accrued employee compensation and benefits payable 150.3 109.1
R&D accruals 66.5 88.3
Other accrued expenses 260.4 299.8
______________ ______________
1,939.7 1,909.4
______________ ______________
12. Other current liabilities
June 30, December 31,
2015 2014
$'M $'M
_____________ _____________
Income taxes payable 60.6 16.2
Value added taxes 19.5 16.6
Contingent consideration payable 19.5 194.5
Other current liabilities 45.9 35.2
_____________ _____________
145.5 262.5
_____________ _____________
13. Borrowings
June 30, December 31,
2015 2014
$'M $'M
_____________ _____________
Short term borrowings:
Borrowings under the 2015 Facility Agreement 850.0 -
Borrowings under the 2013 Facilities Agreement 400.0 850.0
Borrowings under the RCF 920.0 -
Borrowings under short term Credit lines 50.0 -
Secured non-recourse debts 9.9 -
_____________ _____________
2,229.9 850.0
Long term borrowings:
Secured non-recourse debts 73.9 -
_____________ _____________
2,303.8 850.0
_____________ _____________
Term Loan Agreements
2015 Facility Agreement
On January 11, 2015, Shire entered into an $850 million Facility Agreement
with, among others, CitiGroup Global Markets Limited (acting as mandated lead
arranger and bookrunner) (the "2015 Facility Agreement"). At June 30, 2015 the
2015 Facility Agreement, which matures on January 10, 2016, was fully utilized.
The maturity date may be extended twice, at Shire's option, by six months on
each occasion.
The 2015 Facility Agreement has been used to partially finance the purchase
price payable in respect of Shire's acquisition of NPS Pharma (including
certain related costs). See the Shire's Annual Report and Accounts for details
of the 2015 Facility Agreement.
2013 Facilities Agreement
On November 11, 2013, Shire entered into a $2,600 million facilities agreement
with, among others, Morgan Stanley Bank International Limited (acting as
mandated lead arranger and bookrunner) (the "2013 Facilities Agreement"). The
2013 Facilities Agreement comprised two credit facilities: (i) a $1,750 million
term loan facility and (ii) an $850 million term loan facility.
On December 13, 2013 and at various points thereafter, the Group cancelled
parts of the $2,600 million term loan facility. At June 30, 2015 the 2013
Facilities Agreement was comprised of a $400 million term loan facility which
matures on November 11, 2015 and was fully utilized.
The $400 million remaining borrowing from the 2013 Facilities Agreement was
used to partially finance the purchase price payable in respect of Shire's
acquisition of ViroPharma (including certain related costs) during the year
ended December 31, 2014. See Shire's 2014 Annual Report and Accounts for
details of the 2013 Facilities Agreement.
Revolving Credit Facility ("RCF")
On December 12, 2014, Shire entered into a $2,100 million RCF with a number of
financial institutions. See Shire's 2014 Annual Report and Accounts for
details. At June 30, 2015 the Group has utilized $920 million of the RCF to
partially finance the purchase price payable in respect of Shire's acquisition
of NPS Pharma (including certain related costs).
The RCF, which terminates on December 12, 2019, may be applied towards
financing the general corporate purposes of Shire. The RCF incorporates a $250
million US dollar and euro swingline facility operating as a sub-limit thereof.
Secured Non-recourse Debts
Prior to the acquisition by Shire, NPS Pharma had:
* partially monetized rights to receive future royalty payments from Amgen's
sales of SENSIPAR and MIMPARA through the issuance of $145 million of
non-recourse debt that is both serviced and secured by SENSIPAR and MIMPARA
royalty revenue;
* sold to DRI Capital Inc. ("DRI") certain rights to receive up to $96
million of future royalty payments arising from Kyowa Hakko Kirin's sales
of REGPARA and granted DRI a security interest in the license agreement
with Kyowa Hakko Kirin, certain patents and other intellectual property
related to REGPARA which DRI would be entitled to enforce in the event of
default by NPS Pharma; and
* partially monetized PTH-184 (now marketed as NATPARA) through an agreement
with an affiliate of DRI pursuant to which NPS Pharma, its licensees and
its predecessors in interest, are obligated to pay up to $125 million
royalties on sales of PTH-184. Additionally, NPS Pharma granted DRI a
security interest in certain patents and other intellectual property
related to PTH 1-84 which DRI would be entitled to enforce in the event of
default by NPS Pharma.
Following the acquisition of NPS Pharma the Group has assumed these secured
non-recourse debt obligations.
In May 2015 the Group notified Amgen that it intended to repay in full the
remaining non-recourse debt. The repayment was effected on May 15, 2015 by
Amgen withholding certain royalties that were due to the Group from SENSIPAR
and MIMPARA sales in the first quarter of 2015.
As at June 30, 2015 $9.9 million has been included within Short-term
borrowings, and $73.9 million has been included within Long-term borrowings in
respect of the remaining obligations to DRI.
Short term uncommitted lines of credit ("Credit lines")
Shire has access to various Credit lines from a number of banks which provide
flexibility to short term cash management procedures. These Credit lines can
be withdrawn by the banks at any time. The Credit lines are not relied upon for
core liquidity. As at June 30, 2015 $50 million was borrowed under these
Credit lines.
14. Other non-current liabilities
June 30, December 31,
2015 2014
$'M $'M
____________ ____________
Income taxes payable 178.9 199.2
Contingent consideration payable 445.2 435.4
Other non-current liabilities 94.6 102.1
____________ ____________
718.7 736.7
____________ ____________
15. Commitments and contingencies
(a) Leases
Future minimum lease payments under operating leases at June 30, 2015 are
presented below:
Operating
leases
$'M
____________
2015 1 25.0
2016 1 42.1
2017 1 32.6
2018 1 25.0
2019 1 20.8
2020 20.0
Thereafter 1 125.9
111 ____________
291.4
____________
The Group leases land, facilities, motor vehicles and certain equipment under
operating leases expiring through 2032. Lease and rental expense amounted to
$24.3 million and $20.8 million for the six months to June 30, 2015 and 2014
respectively, which is predominately included in SG&A expenses in the Group's
consolidated income statement.
(b) Letters of credit and guarantees
At June 30, 2015 the Group had irrevocable standby letters of credit and
guarantees with various banks and insurance companies totaling $48.0 million
(being the contractual amounts), providing security for the Group's performance
of various obligations. These obligations are primarily in respect of the
recoverability of insurance claims, lease obligations and supply commitments.
(c) Collaborative and other licensing arrangements
Details of significant updates in collaborative and other licensing
arrangements are included below:
Out-licensing arrangements
Shire has entered into various collaborative and out-licensing arrangements
under which the Group has out-licensed certain product or intellectual property
rights for consideration such as up-front payments, development milestones,
sales milestones and/or royalty payments. In some of these arrangements Shire
and the licensee are both actively involved in the development and
commercialization of the licensed product and have exposure to risks and
rewards dependent on its commercial success. Under the terms of these
collaborative and out-licensing arrangements, the Group may receive development
milestone payments up to an aggregate amount of $39 million and sales
milestones up to an aggregate amount of $46 million. The receipt of these
substantive milestones is uncertain and contingent on the achievement of
certain development milestones or the achievement of a specified level of
annual net sales by the licensee. In the six months to June 30, 2015 Shire
received cash in respect of up-front and milestone payments totaling $12.6
million (2014: $1.0 million). In the six months to June 30, 2015 Shire
recognized milestone income of $1.0 million (2014: $2.0 million) in other
revenues and $23.4 million (2014: $26.4 million) in product sales for shipment
of product to the relevant licensee.
(d) Commitments
(i) Clinical testing
At June 30, 2015 the Group had committed to pay approximately $430 million
(December 31, 2014: $382 million) to contract vendors for administering and
executing clinical trials. The timing of these payments is dependent upon
actual services performed by the organizations as determined by patient
enrollment levels and related activities.
(ii) Contract manufacturing
At June 30, 2015 the Group had committed to pay approximately $310 million
(December 31, 2014: $384 million) in respect of contract manufacturing. The
Group expects to pay $107 million of these commitments in 2015.
(iii) Other purchasing commitments
At June 30, 2015 the Group had committed to pay approximately $275 million
(December 31, 2014: $265 million) for future purchases of goods and services,
predominantly relating to active pharmaceutical ingredients sourcing. The Group
expects to pay $266 million of these commitments in 2015.
(iv) Investment commitments
At June 30, 2015 the Group had outstanding commitments to subscribe for
interests in companies and partnerships for amounts totaling $58 million
(December 31, 2014: $67 million) which may all be payable in 2015, depending on
the timing of capital calls. The investment commitments include additional
funding to certain VIEs of which Shire is not the primary beneficiary.
(v) Capital commitments
At June 30, 2015 the Group had committed to spend $9 million (December 31,
2014: $3 million) on capital projects.
(e) Legal and other proceedings
The Group expenses legal costs as they are incurred.
The Group recognizes loss contingency provisions for probable losses when
management is able to reasonably estimate the loss. When the estimated loss
lies within a range, the Group records a loss contingency provision based on
its best estimate of the probable loss. If no particular amount within that
range is a better estimate than any other amount, the minimum amount is
recorded. Estimates of losses may be developed substantially before the
ultimate loss is known, and are therefore refined each accounting period as
additional information becomes known. In instances where the Group is unable to
develop a reasonable estimate of loss, no loss contingency provision is
recorded at that time. As information becomes known a loss contingency
provision is recorded when a reasonable estimate can be made. The estimates are
reviewed quarterly and the estimates are changed when expectations are revised.
An outcome that deviates from the Group's estimate may result in an additional
expense or release in a future accounting period. At June 30, 2015, provisions
for litigation losses, insurance claims and other disputes totaled $8.5 million
(December 31, 2014: $16.9 million).
The Group's principal pending legal and other proceedings are disclosed
below. The outcomes of these proceedings are not always predictable and can be
affected by various factors. For those legal and other proceedings for which it
is considered at least reasonably possible that a loss has been incurred, the
Group discloses the possible loss or range of possible loss in excess of the
recorded loss contingency provision, if any, where such excess is both material
and estimable.
VYVANSE
In May and June 2011, Shire was notified that six separate Abbreviated New Drug
Applications ("ANDAs") were submitted under the Hatch-Waxman Act seeking
permission to market generic versions of all approved strengths of VYVANSE. The
notices were from Sandoz, Inc. ("Sandoz"); Amneal Pharmaceuticals LLC
("Amneal"); Watson Laboratories, Inc. ("Watson"); Roxane Laboratories, Inc.
("Roxane"); Mylan Pharmaceuticals, Inc. ("Mylan"); and Actavis Elizabeth LLC
and Actavis Inc. (collectively, "Actavis"). Since filing suit against these
ANDA filers, along with API suppliers Johnson Matthey Inc. and Johnson Matthey
Pharmaceuticals Materials (collectively "Johnson Matthey"), Shire has been
engaged in a consolidated patent infringement litigation in the US District
Court for the District of New Jersey against the aforementioned parties (except
Watson, who withdrew their ANDA).
On June 23, 2014, the US District Court for the District of New Jersey granted
Shire's summary judgment motion holding that 18 claims of the patents-in-suit
were both infringed and valid. The ruling prevents all of the ANDA filers
(Sandoz, Roxane, Amneal, Actavis and Mylan) from launching generic versions of
VYVANSE until the earlier of either a successful appeal to the US Court of
Appeals for the Federal Circuit ("CAFC"), or the expiration of these patents in
2023. To appeal successfully, the ANDA-defendants must overturn the court's
rulings for each of these 18 patent claims. All of the defendants have appealed
the court's summary judgment ruling to the CAFC. Oral argument occurred on May
6, 2015 and a decision is pending.
LIALDA
In May 2010, Shire was notified that Zydus Pharmaceuticals USA, Inc. ("Zydus")
had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a
generic version of LIALDA. Within the requisite 45 day period, Shire filed a
lawsuit in the US District Court for the District of Delaware against Zydus and
Cadila Healthcare Limited, doing business as Zydus Cadila. A Markman hearing
took place on January 29, 2015 and a Markman ruling was issued on July 28,
2015. The previously scheduled trial date has been vacated; at present, there
is no trial date.
In February 2012, Shire was notified that Osmotica Pharmaceutical Corporation
("Osmotica") had submitted an ANDA under the Hatch-Waxman Act seeking
permission to market a generic version of LIALDA. Within the requisite 45 day
period, Shire filed a lawsuit in the US District Court for the Northern
District of Georgia against Osmotica. A Markman hearing took place on August
22, 2013 and a Markman ruling was issued on September 25, 2014. The Court
issued an Order on February 27, 2015 in which all dates in the scheduling order
have been stayed.
In March 2012, Shire was notified that Watson Laboratories Inc.-Florida had
submitted an ANDA under the Hatch-Waxman Act seeking permission to market a
generic version of LIALDA. Within the requisite 45 day period, Shire filed a
lawsuit in the US District Court for the Southern District of Florida against
Watson Laboratories Inc.-Florida and Watson Pharmaceuticals, Inc. Watson
Pharma, Inc. and Watson Laboratories, Inc. were subsequently added as
defendants. A trial took place in April, 2013 and on May 9, 2013 the trial
court issued a decision finding that the proposed generic product infringes the
patent-in-suit and that the patent is not invalid. Watson appealed the trial
court's ruling to the CAFC and a hearing took place on December 2, 2013. The
ruling of the CAFC was issued on March 28, 2014 overruling the trial court on
the interpretation of two claim terms and remanding the case for further
proceedings. Shire petitioned the Supreme Court for a writ of certiori, which
was granted on January 26, 2015. The Supreme Court also vacated the CAFC
decision and remanded the case to the CAFC for further consideration in light
of the Supreme Court's recent decision in Teva v Sandoz. On June 3, 2015,
the CAFC reaffirmed their previous decision to reverse the district court's
claims construction. We expect the CAFC to issue a mandate in the near future
remanding the case to the US District Court for the Southern District of
Florida.
In April 2012, Shire was notified that Mylan had submitted an ANDA under the
Hatch-Waxman Act seeking permission to market a generic version of LIALDA.
Within the requisite 45 day period, Shire filed a lawsuit in the US District
Court for the Middle District of Florida against Mylan. A Markman hearing took
place on December 22, 2014. A Markman ruling was issued on March 23, 2015. A
trial is scheduled during the court's trial term beginning on September 1,
2015.
In March 2015, Shire was notified that Amneal had submitted an ANDA under the
Hatch-Waxman Act seeking permission to market a generic version of LIALDA.
Within the requisite 45 day period, Shire filed a lawsuit in the US District
Court for the District of New Jersey against Amneal, Amneal Pharmaceuticals of
New York, LLC and Amneal Pharmaceuticals Co. India Pvt. Ltd. No trial date has
been set.
Investigation related to DERMAGRAFT
The Department of Justice, including the US Attorney's Office for the Middle
District of Florida, Tampa Division and the US Attorney's Office for
Washington, DC, is conducting civil and criminal investigations into the sales
and marketing practices of Advanced BioHealing Inc. ("ABH") relating to
DERMAGRAFT.
Following the disposal of the DERMAGRAFT business in January 2014, Shire has
retained certain legacy liabilities including any liability that may arise from
this investigation. Shire is cooperating fully with these investigations. Shire
is not in a position at this time to predict the scope, duration or outcome of
these investigations.
Civil Investigative Demand relating to VANCOCIN
On April 6, 2012, ViroPharma received a notification that the United States
Federal Trade Commission ("FTC") is conducting an investigation into whether
ViroPharma had engaged in unfair methods of competition with respect to
VANCOCIN. On August 3, 2012, and September 8, 2014, ViroPharma and Shire
respectively received Civil Investigative Demands from the FTC requesting
additional information related to this matter. Shire intends to continue to
cooperate fully with the FTC investigation. At this time, Shire is unable to
predict the outcome or duration of this investigation.
Lawsuit related to supply of ELAPRASE to certain patients in Brazil
On September 24, 2014 Shire's Brazilian affiliate, Shire Farmaceutica Brasil
Ltda, was served with a lawsuit brought by the State of Sao Paulo and in which
the Brazilian Public Attorney's office has intervened alleging that Shire is
obligated to provide certain medical care including ELAPRASE for an indefinite
period at no cost to patients who participated in ELAPRASE clinical trials in
Brazil, and seeking recoupment to the Brazilian government for amounts paid for
these patients to date, and moral damages associated with these claims. Shire
intends to defend itself against these allegations but is not able to predict
the outcome or duration of this case.
16. Accumulated Other Comprehensive loss
The changes in accumulated other comprehensive loss, net of their related tax
effects, in the six months to June 30, 2015 and 2014 are included below:
Foreign currency Unrealized holding Accumulated
translation loss on other
As at June 30, 2015 adjustment available-for-sale comprehensive
securities loss
$M $M $M
As at January 1, 2015 (25.7) (5.8) (31.5)
Current period change:
Net current period other comprehensive (83.3) 3.3 (80.0)
(loss)/income
As at June 30, 2015 (109.0) (2.5) (111.5)
Foreign Unrealized holding Accumulated other
As at June 30, 2014 currency gain/(loss) on comprehensive
translation available-for-sale income
adjustment securities
$M $M $M
As at January 1, 2014 110.4 (0.2) 110.2
Current period change:
Other comprehensive income before 10.2 6.9 17.1
reclassification
Gain transferred to the income
statement (within Other income, net) - (3.2) (3.2)
on disposal of available-for-sale
securities
Net current period other comprehensive 10.2 3.7 13.9
income
As at June 30, 2014 120.6 3.5 124.1
17. Financial instruments
Treasury policies and organization
The Group's principal treasury operations are coordinated by its corporate
treasury function. All treasury operations are conducted within a framework of
policies and procedures approved annually by the Board. As a matter of policy,
the Group does not undertake speculative transactions that would increase its
currency or interest rate exposure.
Interest rate risk
The Group is principally exposed to interest rate risk on borrowings under its
$2,100 million RCF, its $400 million 2013 Facilities Agreement, its $850
million 2015 Facility Agreement and its Credit lines, on which interest is set
at floating rates, to the extent any of these facilities are utilized. At June
30, 2015 the Group had fully utilized the 2013 Facilities Agreement, fully
utilized the 2015 Facility Agreement, utilized $920 million of the RCF and
utilized $50million of its Credit lines. Shire's exposure under its 2013
Facilities Agreement, 2015 Facility Agreement, RCF and Credit lines is to US
dollar interest rates.
The Group has evaluated the interest rate risk on the Credit lines, the RCF,
the 2013 Facilities Agreement and the 2015 Facility Agreement and considers the
risks associated with floating interest rates on borrowings under its
facilities as appropriate. A hypothetical one percentage point increase or
decrease in the interest rates applicable to drawings under the Credit lines,
the 2013 Facilities Agreement, 2015 Facility Agreement and RCF at June 30, 2015
would increase interest expense by approximately $23 million per annum or would
decrease the interest expense by approximately $5 million per annum.
The Group is also exposed to interest rate risk on its restricted cash, cash
and cash equivalents and on foreign exchange contracts on which interest is set
at floating rates. This exposure is primarily limited to US dollar, Pounds
sterling and Euro interest rates. As the Group maintains all of its cash,
liquid investments and foreign exchange contracts on a short term basis for
liquidity purposes, this risk is not actively managed. In the six months to
June 30, 2015 the average interest rate received on cash and liquid investments
was less than 1% per annum. The largest proportion of these cash and liquid
investments was in US dollar term deposits with banks.
No derivative instruments were entered into during the six months to June 30,
2015 to manage interest rate exposure. The Group continues to review its
interest rate risk and the policies in place to manage the risk.
Credit risk
Financial instruments that potentially expose Shire to concentrations of credit
risk consist primarily of short-term cash investments, derivative contracts and
trade accounts receivable (from product sales and from third parties from which
the Group receives royalties). Cash is invested in short-term money market
instruments, including money market and liquidity funds and bank term deposits.
The money market and liquidity funds in which Shire invests are all triple A
rated by both Standard and Poor's and by Moody's credit rating agencies.
The Group is exposed to the credit risk of the counterparties with which it
enters into bank term deposit arrangements and derivative instruments. The
Group limits this exposure through a system of internal credit limits which
vary according to ratings assigned to the counterparties by the major rating
agencies. The internal credit limits are approved by the Board and exposure
against these limits is monitored by the corporate treasury function. The
counterparties to these derivatives contracts are major international financial
institutions.
The Group's revenues from product sales in the US are mainly governed by
agreements with major pharmaceutical wholesalers and relationships with other
pharmaceutical distributors and retail pharmacy chains. For the year to
December 31, 2014 there were three customers in the US that accounted for 47%
of the Group's product sales. However, such customers typically have
significant cash resources and as such the risk from concentration of credit is
considered acceptable. The Group has taken positive steps to manage any credit
risk associated with these transactions and operates clearly defined credit
evaluation procedures. However, an inability of one or more of these
wholesalers to honor their debts to the Group could have an adverse effect on
the Group's financial condition and results of operations.
A substantial portion of the Group's accounts receivable in countries outside
of the United States is derived from product sales to government-owned or
government-supported healthcare providers. The Group's recovery of these
accounts receivable is therefore dependent upon the financial stability and
creditworthiness of the relevant governments. In recent years global and
national economic conditions have negatively affected the growth,
creditworthiness and general economic condition of certain markets in which the
Group operates. As a result, in some countries outside of the US,
specifically, Argentina, Greece, Italy, Portugal and Spain (collectively the
"Relevant Countries") the Group is experiencing delays in the remittance of
receivables due from government-owned or government-supported healthcare
providers. The Group continued to receive remittances in relation to
government-owned or government-supported healthcare providers in the Relevant
Countries in the six months to June 30, 2015, including receipts of $58.8
million and $39.6 million in respect of Spanish and Italian receivables,
respectively. The Group's exposure to Greece, both in terms of gross accounts
receivable and annual revenues, is not material.
To date the Group has not incurred material losses on accounts receivable in
the Relevant Countries, and continues to consider that such accounts receivable
are recoverable. The Group will continue to evaluate all its accounts
receivable for potential collection risks and has made provision for amounts
where collection is considered to be doubtful. If the financial condition of
the Relevant Countries or other Eurozone countries suffer significant
deterioration, such that their ability to make payments becomes uncertain, or
if one or more Eurozone member countries withdraws from the Euro, additional
allowances for doubtful accounts may be required, and losses may be incurred,
in future periods. Any such loss could have an adverse effect on the Group's
financial condition and results of operations.
Foreign exchange risk
The Group trades in numerous countries and as a consequence has transactional
and translational foreign exchange exposures.
Transactional exposure arises where transactions occur in currencies different
to the functional currency of the relevant subsidiary. The main trading
currencies of the Group are the US dollar, Pounds Sterling, Swiss Franc,
Canadian dollar and the Euro. It is the Group's policy that these exposures are
minimized to the extent practicable by denominating transactions in the
subsidiary's functional currency.
Where significant exposures remain, the Group uses foreign exchange contracts
(being spot, forward and swap contracts) to manage the exposure for balance
sheet assets and liabilities that are denominated in currencies different to
the functional currency of the relevant subsidiary. These assets and
liabilities relate predominantly to inter-company financing. The foreign
exchange contracts have not been designated as hedging instruments. Cash flows
from derivative instruments are presented within net cash provided by operating
activities in the consolidated cash flow statement, unless the derivative
instruments are economically hedging specific investing or financing
activities.
Translational foreign exchange exposure arises on the translation into US
dollars of the financial statements of non-US dollar functional subsidiaries.
At June 30, 2015 the Group had 31 swap and forward foreign exchange contracts
outstanding to manage currency risk. The swap and forward contracts mature
within 90 days. The Group did not have credit risk related contingent features
or collateral linked to the derivatives. The Group has master netting
agreements with a number of counterparties to these foreign exchange contracts
and on the occurrence of specified events, the Group has the ability to
terminate contracts and settle them with a net payment by one party to the
other. The Group has elected to present derivative assets and derivative
liabilities on a gross basis in the consolidated balance sheet. As at June 30,
2015 the potential effect of rights of set-off associated with the foreign
exchange contracts would be an offset to both assets and liabilities of $0.2
million, resulting in net derivative assets and derivative liabilities of $7.7
million and $0.1 million, respectively. Further details are included below:
Fair value Fair value
June 30, December 31,
2015 2014
$'M $'M
____________ ____________
Assets Prepaid expenses and other current assets 7.9 12.6
Liabilities Other current liabilities 0.3 7.8
____________ ____________
Net gains (both realized and unrealized) arising on foreign exchange contracts
have been classified in the consolidated statements of income as follows:
Location of net gains Amount of net gains
recognized in income recognized in income
In the six months to June 30, June 30,
2015 2014
$'M $'M
____________ ____________
Foreign exchange contracts Other income, net 21.3 13.9
____________ ____________
These net foreign exchange gains are offset within Other income, net by net
foreign exchange (losses)/gains arising on the balance sheet items that these
contracts were put in place to manage.
18. Fair value measurement
Assets and liabilities that are measured at fair value on a recurring basis
As at June 30, 2015 and December 31, 2014 the following financial assets and
liabilities are measured at fair value on a recurring basis using quoted prices
in active markets for identical assets (Level 1); significant other observable
inputs (Level 2); and significant unobservable inputs (Level 3).
Carrying value and Fair value
Total Level 1 Level 2 Level 3
At June 30, 2015 $'M $'M $'M $'M
___________ ___________ ___________ ___________
Financial assets:
Available-for-sale securities(1) 16.3 16.3 - -
Contingent consideration receivable 16.7 - - 16.7
(2)
Foreign exchange contracts 7.9 - 7.9 -
Financial liabilities:
Foreign exchange contracts 0.3 - 0.3 -
Contingent consideration payable(3) 464.7 - - 464.7
___________ ___________ ___________ ___________
Total Level 1 Level 2 Level 3
At December 31, 2014 $'M $'M $'M $'M
___________ ___________ ___________ ___________
Financial assets:
Available-for-sale securities(1) 13.1 13.1 - -
Contingent consideration receivable 15.9 - - 15.9
(2)
Foreign exchange contracts 12.6 - 12.6 -
Financial liabilities:
Foreign exchange contracts 7.8 - 7.8 -
Contingent consideration payable(3) 1 629.9 - - 629.9
___________ ___________ ___________ ___________
(1) Available-for-sale securities are included within
Investments in the consolidated balance sheet.
(2) Contingent consideration receivable is included within
Prepaid expenses and other current assets and Other non-current assets in the
consolidated balance sheet.
(3) Contingent consideration payable is included within Other
current liabilities and Other non-current liabilities in the consolidated
balance sheet.
Certain estimates and judgments were required to develop the fair value
amounts. The fair value amounts shown above are not necessarily indicative of
the amounts that the Group would realize upon disposition, nor do they indicate
the Group's intent or ability to dispose of the financial instrument.
The following methods and assumptions were used to estimate the fair value of
each material class of financial instrument:
* Available-for-sale securities - the fair values of available-for-sale
securities are estimated based on quoted market prices for those
investments.
* Contingent consideration receivable - the fair value of the contingent
consideration receivable has been estimated using the income approach
(using a probability weighted discounted cash flow method).
* Foreign exchange contracts - the fair values of the swap and forward
foreign exchange contracts have been determined using an income approach
based on current market expectations about the future cash flows.
* Contingent consideration payable - the fair value of the contingent
consideration payable has been estimated using the income approach (using a
probability weighted discounted cash flow method).
Assets and Liabilities Measured at Fair Value on a Recurring Basis Using
Significant Unobservable Inputs (Level 3)
The change in the fair value of the Group's contingent consideration
receivable and payables, which are measured at fair value on a recurring
basis using significant unobservable inputs (Level 3), are as follows:
Contingent consideration receivable
2015 2014
$'M $'M
___________ ___________
Balance at January 1, 15.9 36.1
Initial recognition of contingent consideration receivable - 33.6
Gain/(loss) recognized in the income statement (within Gain on
sale of product rights) due to change in fair value during the 8.6 (3.3)
period
Reclassification of amounts to Other receivables within Other (9.1) (8.7)
current assets
Amounts recorded to other comprehensive income (within foreign 1.3 (0.2)
currency translation adjustments)
Balance at June 30, 16.7 57.5
Contingent consideration payable
2015 2014
$'M $'M
___________ ___________
Balance at January 1, 629.9 405.9
Initial recognition of contingent consideration payable 92.1 174.0
Change in fair value during the period with the corresponding
adjustment recognized (within Integration and acquisition (255.7) 21.4
costs) in the income statement
Reclassification of amounts to Other current liabilities (4.1) (10.9)
Change in fair value during the period with corresponding (0.2) 1.4
adjustment to the associated intangible asset
Amounts recorded to other comprehensive income (within 2.7 -
foreign currency translation adjustments)
Balance at June 30, 464.7 591.8
Of the $464.7 million of contingent consideration payable as at June 30, 2015
$19.5 million is recorded within other current liabilities and $445.2 million
is recorded within other non-current liabilities in the Group's balance sheet.
Quantitative Information about Assets and Liabilities Measured at Fair Value on
a Recurring Basis Using Significant Unobservable Inputs (Level 3)
Quantitative information about the Group's recurring Level 3 fair value
measurements is included below:
Financial assets: Fair Value at the Measurement Date
Valuation Significant
At June 30, 2015 Fair value Technique unobservable Range
Inputs
$'M
____________ ___________ ___________ ___________
• Probability
weightings applied
to different sales • 10 to 70%
scenarios
Income approach • Future forecast
Contingent consideration (probability consideration • $28.5 million
receivable ("CCR") 16.7 weighted receivable based to $36 million
discounted cash on contractual
flow) terms with
purchaser
• Assumed market • 8.7%
participant
discount rate
____________ ____________ ____________ ____________
Financial liabilities: Fair Value at the Measurement Date
Valuation Significant
At June 30, 2015 Fair value Technique unobservable Range
Inputs
$'M
____________ ___________ ___________ ___________
• Cumulative • 4 to 85%
probability of
milestones being
achieved
• 0.9 to
• Assumed market 10.5%
participant
Income discount rate
approach
Contingent consideration 464.7 (probability
payable weighted • Periods in • 2015 to
discounted which milestones 2030
cash flow) are expected to
be achieved
• Forecast
quarterly • $0.2 to
royalties payable $7.6 million
on net sales of
relevant products
____________ ____________ ____________ ____________
The Group re-measures the CCR (relating to contingent consideration due to the
Group following divestment of certain of the Group's products) at fair value at
each balance sheet date, with the fair value measurement based on forecast cash
flows, over a number of scenarios which vary depending on the expected
performance outcome of the products following divestment. The forecast cash
flows under each of these differing outcomes have been included in probability
weighted estimates used by the Group in determining the fair value of the CCR.
Contingent consideration payable represents future milestones the Group may be
required to pay in conjunction with various business combinations and future
royalties payable as a result of certain business combinations and licenses.
The amount ultimately payable by Shire in relation to business combinations is
dependent upon the achievement of specified future milestones, such as the
achievement of certain future development, regulatory and sales milestones. The
Group assesses the probability, and estimated timing, of these milestones being
achieved and re-measures the related contingent consideration to fair value
each balance sheet date. The amount of contingent consideration which may
ultimately be payable by Shire in relation to future royalties is dependent
upon future net sales of the relevant products over the life of the royalty
term. The Group assesses the present value of forecast future net sales of the
relevant products and re-measures the related contingent consideration to fair
value each balance sheet date.
The fair value of the Group's contingent consideration receivable and payable
could significantly increase or decrease due to changes in certain assumptions
which underpin the fair value measurements. Each set of assumptions and
milestones is specific to the individual contingent consideration receivable or
payable. The assumptions include, among other things, the probability and
expected timing of certain milestones being achieved, the forecast future net
sales of the relevant products and related future royalties payable, the
probability weightings applied to different sales scenarios of the Group's
divested products and forecast future royalties receivable under scenarios
developed by the Group, and the discount rates used to determine the present
value of contingent future cash flows. The Group regularly reviews these
assumptions, and makes adjustments to the fair value measurements as required
by facts and circumstances.
Assets Measured at Fair Value on a Non-Recurring Basis using Significant
Unobservable Inputs (Level 3)
In the six months to June 30, 2015 the Group reviewed its SHP625 and SHP608 IPR
&D intangible assets for impairment and recognized an impairment charge of
$523.3 million, recorded within R&D in the consolidated income statement, to
write-down these IPR&D assets to their fair value. The fair value of these IPR&
D assets was determined using the income approach, which used significant
unobservable (Level 3) inputs. These unobservable inputs included, among other
things, the probabilities of these IPR&D assets receiving regulatory approval,
the timeframe for such approval, risk-adjusted forecast future cash flows to be
generated by these IPR&D assets and the determination of an appropriate
discount rate to be applied in calculating the present value of forecast future
cash flows. The fair value of these IPR&D assets, determined at the time of the
impairment review, was $120.4 million.
Fair Value at the Measurement Date
Valuation Significant
At June 30, 2015 Fair value Technique unobservable Range
Inputs
$'M
____________ ___________ ___________ ___________
• Probability of
regulatory • 5 to 33%
approval being
obtained
Income
IPR&D intangible assets $120.4 approach • Expected • 2018 to
(SHP625 and SHP608) (discounted commercial launch 2021
cash flow) date
• Assumed market • 9.7 to
participant 10.7%
discount rate
____________ ____________ ____________ ____________
The carrying amounts of other financial assets and liabilities materially
approximate to their fair value either because of the short-term maturity of
these amounts or because there have been no significant changes since the asset
or liability was last re-measured to fair value on a non-recurring basis.
19. Earnings per share
The following table reconciles net income and the weighted average ordinary
shares outstanding for basic and diluted earnings per share for the periods
presented:
6 months to 6 months to
June 30, June 30,
2015 2014
$'M $'M
____________ ____________
Income from continuing operations, 577.0 781.4
net of taxes
Loss from discontinued operations1 (7.0) (27.9)
____________ ____________
Numerator for basic and diluted 570.0 753.5
earnings per share
____________ ____________
Weighted average number of shares:
Millions Millions
____________ ____________
Basic (1) 589.8 585.3
Effect of dilutive shares:
Share-based awards to employees (2) 3.2 5.0
____________ ____________
Diluted 593.0 590.3
____________ ____________
1. Excludes shares purchased by the EBT and presented by Shire as treasury
stock.
2. Calculated using the treasury stock method.
The share equivalents not included in the calculation of the diluted weighted
average number of shares are shown below:
6 months to 6 months to
June 30, June 30,
2015 2014
No. of No. of shares
shares
Millions Millions
____________ ____________
Share-based awards to employees(1) 3.2 1.2
____________ ____________
1. Certain stock options have been excluded from the calculation of diluted
EPS because (a) their exercise prices exceeded Shire plc's average share
price during the calculation period or (b) the required performance
conditions were not satisfied as at the balance sheet date.
20. Segmental reporting
Shire comprises a single operating and reportable segment engaged in the
research, development, licensing, manufacturing, marketing, distribution and
sale of innovative specialist medicines to meet significant unmet patient
needs.
This segment is supported by several key functions: a Pipeline group,
consisting of R&D and Corporate Development, which prioritizes its activities
towards late-stage development programs across a variety of therapeutic areas,
while focusing its pre-clinical development activities primarily in Rare
Diseases; a Technical Operations group responsible for the Group's global
supply chain; and an In-line marketed products group which focuses on
commercialized products. The In-Line marketed products group has commercial
units that focus exclusively on the commercial execution of its marketed
products including in the areas of Rare Diseases, Neuroscience, and
Gastrointestinal ("GI") and Internal Medicine, and to support the development
of our pipeline candidates, in Ophthalmics. This ensures that the Group
provides innovative treatments, and services the needs of its customers and
patients, as efficiently as possible. The business is also supported by a
simplified, centralized corporate function group. None of these functional
groups meets all of the criteria to be an operating segment.
This single operating and reportable segment is consistent with the financial
information regularly reviewed by the Executive Committee (which is Shire's
chief operating decision maker) for the purposes of evaluating performance,
allocating resources, and planning and forecasting future periods.
In the periods set out below, revenues by major product were as follows:
6 months to June 30, June 30,
2015 2014
$'M $'M
___________ ___________
VYVANSE 841.6 710.7
LIALDA/MEZAVANT 306.4 272.5
CINRYZE 286.9 215.5
ELAPRASE 271.5 280.7
REPLAGAL 214.4 244.8
FIRAZYR 196.6 163.9
ADDERALL XR 181.7 184.9
VPRIV 171.1 176.6
PENTASA 145.0 135.5
FOSRENOL 89.2 88.1
GATTEX/REVESTIVE 52.2 -
XAGRID 48.1 55.0
INTUNIV 26.9 182.3
NATPARA 5.9 -
Other product sales 61.9 67.2
____________ ____________
Total product sales 2,899.4 2,777.7
____________ ____________
21. Taxation
The effective rate of tax for the six months to June 30, 2015 was 2% (2014:
-19%).
The effective rate of tax for the six months to June 30, 2015 is low primarily
due to the reduction in deferred tax liabilities in relation to the impairment
of IPR&D intangible assets, the re-measurement of uncertain tax positions
relating to ongoing tax audits and the release of certain valuation allowances
all recognized during the first half.
The effective rate of tax in the six months to June 30, 2014 was negative
primarily due to the recognition of a net tax credit in the first half of 2014
in relation to the settlement of tax positions with the Canadian revenue
authorities.
22. Related parties
Shire considers that ArmaGen, Inc. ("ArmaGen") is a related party by virtue of
a combination of Shire's equity stake in ArmaGen and the worldwide licensing
and collaboration agreement between the two parties to develop and
commercialize AGT-182. In the six months to June 30, 2015 Shire paid $2.5
million in cash to ArmaGen in exchange for an additional equity stake in
ArmaGen, following which Shire holds approximately 21% of ArmaGen's issued
equity. In addition, Shire recorded R&D costs arising from the licensing and
collaboration arrangement of $5.9 million in the first half of 2015, of which
$5.4 million was accrued and unpaid as at June 30, 2015.
Non GAAP Measures
This Half Yearly Report contains financial measures not prepared in accordance
with US GAAP. These measures are referred to as "Non GAAP" measures and
include: Non GAAP net cash/(debt) and Non GAAP EBITDA. These Non GAAP measures
exclude the effect of certain cash and non-cash items that Shire's management
believes are not related to the core performance of Shire's business.
These Non GAAP financial measures are used by Shire's management to make
operating decisions because they facilitate internal comparisons of Shire's
performance to historical results and to competitors' results. Shire's
Remuneration Committee uses certain key Non GAAP measures when assessing the
performance and compensation of employees, including Shire's directors.
The Non GAAP measures are presented in this Half Yearly Report as Shire's
management believe that they will provide investors with a means of evaluating,
and an understanding of how Shire's management evaluates, Shire's performance
and results on a comparable basis that is not otherwise apparent on a US GAAP
basis, since many non-recurring, infrequent or non-cash items that Shire's
management believe are not indicative of the core performance of the business
may not be excluded when preparing financial measures under US GAAP.
These Non GAAP measures should not be considered in isolation from, as
substitutes for, or superior to financial measures prepared in accordance with
US GAAP.
Where applicable the following items, including their tax effect, have been
excluded when calculating Non GAAP EBITDA for both 2015 and 2014:
Amortization and asset impairments:
* Intangible asset amortization and impairment charges; and
* Other than temporary impairment of investments.
Acquisitions and integration activities:
* Up-front payments and milestones in respect of in-licensed and acquired
products;
* Costs associated with acquisitions, including transaction costs, fair value
adjustments on contingent consideration and acquired inventory;
* Costs associated with the integration of companies; and
* Noncontrolling interests in consolidated variable interest entities.
Divestments, reorganizations and discontinued operations:
* Gains and losses on the sale of non-core assets;
* Costs associated with restructuring and reorganization activities;
* Termination costs; and
* Income/(losses) from discontinued operations.
Legal and litigation costs:
* Net legal costs related to the settlement of litigation, government
investigations and other disputes (excluding internal legal team costs).
Other:
* Net income tax credit (being income tax, interest and estimated penalties)
related to the settlement of certain tax positions with the Canadian
revenue authorities;
* Costs associated with AbbVie's terminated offer for Shire, including costs
of employee retention awards; and
* Break fee received in relation to AbbVie's terminated offer for Shire.
Growth at CER, which is a Non GAAP measure, is computed by restating 2015
results using average 2014 foreign exchange rates for the relevant period.
Average exchange rates used by Shire for the six months to June 30, 2015 were
$1.53:£1.00 and $1.13:€1.00 (2014: $1.67:£1.00 and $1.37:€1.00).
The following table reconciles US GAAP net income to Non GAAP EBITDA:
6 months to June 30,
2015 2014
$M $M
US GAAP Net Income 570.0 753.5
(Deduct) / add back:
Loss from discontinued 7.0 27.9
operations, net of tax
Equity in (earnings)/losses
of equity method investees, 0.9 (2.4)
net of taxes
Income taxes 13.3 (125.9)
Other expense/ (income), (2.3) (8.0)
net
Interest expense 20.9 18.9
Interest income (2.6) (19.2)
US GAAP Operating income 607.2 644.8
from continuing operations
Amortization 219.6 119.0
Depreciation 72.2 81.5
Asset impairments 523.3 188.0
Acquisition and integration (120.4) 191.2
activities
Divestments,
reorganizations and 16.2 55.0
discontinued operations
Legal and litigation costs 2.7 3.9
Other 48.0 19.1
Non GAAP EBITDA 1,368.8 1,302.5
Independent review report to Shire plc
We have been engaged by Shire plc ("the company") to review the condensed
consolidated set of financial statements for the Company and its subsidiaries
(the "Group") in the half-yearly financial report for the six months ended 30
June 2015 which comprises the consolidated balance sheet, consolidated
statement of income, consolidated statements of comprehensive income,
consolidated statements of changes in equity, the consolidated statements of
cash flows and related notes 1 to 22. We have read the other information
contained in the half-yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity"
issued by the Auditing Practices Board. Our work has been undertaken so that
we might state to the company those matters we are required to state to it in
an independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our review work, for this report, or for the conclusions
we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with accounting principles generally accepted in the
United States of America ("US GAAP"). The condensed set of financial
statements included in this half-yearly financial report has been prepared in
accordance with the accounting policies the Group intends to use in preparing
its next financial statements.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2015 is not prepared, in all
material respects, in accordance with US GAAP and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
30 July 2015
SHIRE : Half-yearly Report
July 30, 2015 at 10:36 am EDT
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