Jersey (Channel Islands) (State or other jurisdiction of incorporation or organization) |
|
5 Riverwalk, Citywest Business Campus, Dublin 24, Republic of Ireland (Address of principal executive offices and zip code) | +353 1 429 7700 ( |
All forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by this cautionary statement. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Except to the extent otherwise required by applicable law, we do not undertake any obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.
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FINANCIAL STATEMENTS | |||
| |||
June 30, | December 31, | |||||||
2016 | 2015 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 693.4 | $ | 135.5 | ||||
Restricted cash | 20.0 | 86.0 | ||||||
Accounts receivable, net | 2,412.4 | 1,201.2 | ||||||
Inventories | 5,798.7 | 635.4 | ||||||
Prepaid expenses and other current assets | 733.6 | 197.4 | ||||||
Total current assets | 9,658.1 | 2,255.5 | ||||||
Non-current assets: | ||||||||
Investments | 174.0 | 50.8 | ||||||
Property, plant and equipment, net | 6,596.3 | 828.1 | ||||||
Goodwill | 12,962.4 | 4,147.8 | ||||||
Intangible assets, net | 40,890.3 | 9,173.3 | ||||||
Deferred tax asset | 129.6 | 121.0 | ||||||
Other non-current assets | 309.8 | 33.3 | ||||||
Total assets | 70,720.5 | 16,609.8 | ||||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | 3,728.1 | 2,050.6 | ||||||
Short-term borrowings | 2,715.2 | 1,511.5 | ||||||
Other current liabilities | 411.5 | 144.0 | ||||||
Total current liabilities | 6,854.8 | 3,706.1 | ||||||
Non-current liabilities: | ||||||||
Long-term borrowings | 21,312.1 | 69.9 | ||||||
Deferred tax liability | 10,053.8 | 2,205.9 | ||||||
Other non-current liabilities | 2,736.8 | 798.8 | ||||||
Total liabilities | 40,957.5 | 6,780.7 | ||||||
Commitments and contingencies | - | - |
SHIRE PLC
CONSOLIDATED BALANCE SHEETS (continued)
(unaudited, in millions except per share amounts)
June 30, | December 31, | |||||||
2016 | 2015 | |||||||
Equity: | ||||||||
Common stock of 5p par value; 1,000 million shares authorized; and 906.9 million shares issued and outstanding (2015: 1,000 million shares authorized; and 601.1 million shares issued and outstanding) | 81.0 | 58.9 | ||||||
Additional paid-in capital | 24,473.2 | 4,486.3 | ||||||
Treasury stock: 9.1 million shares (2015: 9.7 million shares) | (302.3 | ) | (320.6 | ) | ||||
Accumulated other comprehensive loss | (385.8 | ) | (183.8 | ) | ||||
Retained earnings | 5,896.9 | 5,788.3 | ||||||
Total equity | 29,763.0 | 9,829.1 | ||||||
Total liabilities and equity | $ | 70,720.5 | $ | 16,609.8 |
September 30, 2016 | December 31, 2015 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 728.6 | $ | 135.5 | |||
Restricted cash | 20.1 | 86.0 | |||||
Accounts receivable, net | 2,633.4 | 1,201.2 | |||||
Inventories | 4,857.1 | 635.4 | |||||
Prepaid expenses and other current assets | 665.3 | 197.4 | |||||
Total current assets | 8,904.5 | 2,255.5 | |||||
Investments | 191.8 | 50.8 | |||||
Property, plant and equipment, net | 6,527.7 | 828.1 | |||||
Goodwill | 14,850.6 | 4,147.8 | |||||
Intangible assets, net | 38,871.5 | 9,173.3 | |||||
Deferred tax asset | 109.0 | 121.0 | |||||
Other non-current assets | 296.2 | 33.3 | |||||
Total assets | $ | 69,751.3 | $ | 16,609.8 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 4,021.7 | $ | 2,050.6 | |||
Short-term borrowings | 2,737.1 | 1,511.5 | |||||
Other current liabilities | 352.1 | 144.0 | |||||
Total current liabilities | 7,110.9 | 3,706.1 | |||||
Long-term borrowings | 20,988.9 | 69.9 | |||||
Deferred tax liability | 9,326.5 | 2,205.9 | |||||
Other non-current liabilities | 2,539.3 | 798.8 | |||||
Total liabilities | 39,965.6 | 6,780.7 | |||||
Commitments and contingencies | |||||||
Equity: | |||||||
Common stock of 5p par value; 1,000 million shares authorized; and 910.9 million shares issued and outstanding (2015: 1,000 million shares authorized; and 601.1 million shares issued and outstanding) | 81.3 | 58.9 | |||||
Additional paid-in capital | 24,631.3 | 4,486.3 | |||||
Treasury stock: 9.1 million shares (2015: 9.7 million shares) | (302.2 | ) | (320.6 | ) | |||
Accumulated other comprehensive loss | (134.2 | ) | (183.8 | ) | |||
Retained earnings | 5,509.5 | 5,788.3 | |||||
Total equity | 29,785.7 | 9,829.1 | |||||
Total liabilities and equity | $ | 69,751.3 | $ | 16,609.8 |
3 Months Ended June 30, | 6 Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenues: | _______________ | _______________ | _______________ | _______________ | ||||||||||||
Product sales | $ | 2,322.1 | $ | 1,476.2 | $ | 3,949.4 | $ | 2,899.4 | ||||||||
Royalties and other revenues | 107.0 | 81.4 | 189.0 | 146.6 | ||||||||||||
Total revenues | 2,429.1 | 1,557.6 | 4,138.4 | 3,046.0 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Cost of sales | 778.1 | 228.0 | 1,026.7 | 455.8 | ||||||||||||
Research and development | 294.8 | 775.9 | 511.9 | 969.6 | ||||||||||||
Selling, general and administrative | 675.3 | 496.0 | 1,150.2 | 914.3 | ||||||||||||
Integration and acquisition costs | 363.0 | (212.4 | ) | 454.1 | (136.7 | ) | ||||||||||
Amortization of acquired intangibles | 213.0 | 131.3 | 347.6 | 219.6 | ||||||||||||
Reorganization costs | 11.0 | 13.3 | 14.3 | 28.5 | ||||||||||||
Gain on sale of product rights | (2.3 | ) | (7.1 | ) | (6.5 | ) | (12.3 | ) | ||||||||
Total operating expenses | 2,332.9 | 1,425.0 | 3,498.3 | 2,438.8 | ||||||||||||
Operating income from continuing operations | 96.2 | 132.6 | 640.1 | 607.2 | ||||||||||||
Interest income | 1.6 | 0.6 | 2.6 | 2.6 | ||||||||||||
Interest expense | (87.2 | ) | (11.3 | ) | (131.9 | ) | (20.9 | ) | ||||||||
Other income/(expense), net | 6.0 | (2.0 | ) | (2.5 | ) | 2.3 | ||||||||||
Total other expense, net | (79.6 | ) | (12.7 | ) | (131.8 | ) | (16.0 | ) | ||||||||
Income from continuing operations before income taxes and equity in earnings of equity method investees | 16.6 | 119.9 | 508.3 | 591.2 | ||||||||||||
Income taxes benefit/(charge) | 70.9 | 44.1 | (11.2 | ) | (13.3 | ) | ||||||||||
Equity in (losses)/earnings of equity method investees, net of taxes | (0.9 | ) | 0.1 | (1.0 | ) | (0.9 | ) | |||||||||
Income from continuing operations, net of taxes | 86.6 | 164.1 | 496.1 | 577.0 | ||||||||||||
Loss from discontinued operations, net of taxes1 | (248.7 | ) | (4.5 | ) | (239.2 | ) | (7.0 | ) | ||||||||
Net (loss)/income | $ | (162.1 | ) | $ | 159.6 | $ | 256.9 | $ | 570.0 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Revenues: | |||||||||||||||
Product sales | $ | 3,315.4 | $ | 1,576.8 | $ | 7,264.8 | $ | 4,476.2 | |||||||
Royalties and other revenues | 136.7 | 78.2 | 325.7 | 224.8 | |||||||||||
Total revenues | 3,452.1 | 1,655.0 | 7,590.5 | 4,701.0 | |||||||||||
Costs and expenses: | |||||||||||||||
Cost of sales | 1,736.2 | 262.7 | 2,762.9 | 718.5 | |||||||||||
Research and development | 511.1 | 241.2 | 1,023.0 | 1,210.8 | |||||||||||
Selling, general and administrative | 875.6 | 442.3 | 2,025.8 | 1,356.6 | |||||||||||
Amortization of acquired intangibles | 354.9 | 132.7 | 702.5 | 352.3 | |||||||||||
Integration and acquisition costs | 284.5 | 89.9 | 738.6 | (46.8 | ) | ||||||||||
Reorganization costs | 101.4 | 31.1 | 115.7 | 59.6 | |||||||||||
Gain on sale of product rights | (5.7 | ) | (0.7 | ) | (12.2 | ) | (13.0 | ) | |||||||
Total operating expenses | 3,858.0 | 1,199.2 | 7,356.3 | 3,638.0 | |||||||||||
Operating (loss)/income from continuing operations | (405.9 | ) | 455.8 | 234.2 | 1,063.0 | ||||||||||
Interest income | 9.3 | 0.8 | 11.9 | 3.4 | |||||||||||
Interest expense | (186.9 | ) | (10.7 | ) | (318.8 | ) | (31.6 | ) | |||||||
Other (expense)/income, net | (13.7 | ) | 9.6 | (16.2 | ) | 11.9 | |||||||||
Total other expense, net | (191.3 | ) | (0.3 | ) | (323.1 | ) | (16.3 | ) | |||||||
(Loss)/income from continuing operations before income taxes and equity in losses of equity method investees | (597.2 | ) | 455.5 | (88.9 | ) | 1,046.7 | |||||||||
Income tax benefit | 229.6 | 22.3 | 218.4 | 9.0 | |||||||||||
Equity in losses of equity method investees, net of taxes | (0.9 | ) | (0.7 | ) | (1.9 | ) | (1.6 | ) | |||||||
(Loss)/income from continuing operations, net of taxes | (368.5 | ) | 477.1 | 127.6 | 1,054.1 | ||||||||||
Loss from discontinued operations, net of taxes | (18.3 | ) | (24.3 | ) | (257.5 | ) | (31.3 | ) | |||||||
Net (loss)/income | $ | (386.8 | ) | $ | 452.8 | $ | (129.9 | ) | $ | 1,022.8 |
3 Months Ended June 30, | 6 Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(Loss)/earnings per ordinary share - basic | ||||||||||||||||
Earnings from continuing operations | $ | 0.12 | $ | 0.28 | $ | 0.78 | $ | 0.98 | ||||||||
Loss from discontinued operations | $ | (0.36 | ) | $ | (0.01 | ) | $ | (0.38 | ) | $ | (0.01 | ) | ||||
(Loss)/earnings per ordinary share - basic | $ | (0.24 | ) | $ | 0.27 | $ | 0.40 | $ | 0.97 | |||||||
(Loss)/earnings per ordinary share - diluted | ||||||||||||||||
Earnings from continuing operations | $ | 0.12 | $ | 0.28 | $ | 0.77 | $ | 0.97 | ||||||||
Loss from discontinued operations | $ | (0.36 | ) | $ | (0.01 | ) | $ | (0.37 | ) | $ | (0.01 | ) | ||||
(Loss)/earnings per ordinary share - diluted | $ | (0.24 | ) | $ | 0.27 | $ | 0.40 | $ | 0.96 | |||||||
Cash dividends declared and paid per ordinary share | $ | 0.22 | $ | 0.19 | $ | 0.22 | $ | 0.19 | ||||||||
Weighted average number of ordinary shares: | ||||||||||||||||
Basic | 682.8 | 590.5 | 637.3 | 589.8 | ||||||||||||
Diluted | 682.8 | 593.2 | 640.1 | 593.0 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(Loss)/earnings per ordinary share - basic | |||||||||||||||
(Loss)/earnings from continuing operations | $ | (0.41 | ) | $ | 0.81 | $ | 0.18 | $ | 1.79 | ||||||
Loss from discontinued operations | (0.02 | ) | (0.04 | ) | (0.36 | ) | (0.06 | ) | |||||||
(Loss)/earnings per ordinary share - basic | $ | (0.43 | ) | $ | 0.77 | $ | (0.18 | ) | $ | 1.73 | |||||
(Loss)/earnings per ordinary share - diluted | |||||||||||||||
(Loss)/earnings from continuing operations | $ | (0.41 | ) | $ | 0.80 | $ | 0.18 | $ | 1.78 | ||||||
Loss from discontinued operations | (0.02 | ) | (0.04 | ) | (0.36 | ) | (0.06 | ) | |||||||
(Loss)/earnings per ordinary share - diluted | $ | (0.43 | ) | $ | 0.76 | $ | (0.18 | ) | $ | 1.72 | |||||
Cash dividends declared and paid per ordinary share | $ | — | $ | — | $ | 0.22 | $ | 0.19 | |||||||
Weighted average number of ordinary shares: | |||||||||||||||
Basic | 900.2 | 590.9 | 725.5 | 590.2 | |||||||||||
Diluted | 900.2 | 593.4 | 725.5 | 593.2 |
3 Months Ended June 30, | 6 Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Net (loss)/income | $ | (162.1 | ) | $ | 159.6 | $ | 256.9 | $ | 570.0 | |||||||
Other comprehensive(loss)/income: | ||||||||||||||||
Foreign currency translation adjustments | (220.2 | ) | 46.2 | (195.5 | ) | (83.3 | ) | |||||||||
Unrealized (loss)/gain on available-for-sale securities (net of tax benefit of $1.4 for both the three and six months ended June 30, 2016 and $nil for both the three and six months ended June 30, 2015) | (4.4 | ) | 2.6 | (4.7 | ) | 3.3 | ||||||||||
Hedging activities, net of tax benefit of $1.6 for both the three and six months ended June 30, 2016, respectively and $nil for both the three and six months ended June 30, 2015 | (1.8 | ) | - | (1.8 | ) | - | ||||||||||
Comprehensive (loss)/income | $ | (388.5 | ) | $ | 208.4 | $ | 54.9 | $ | 490.0 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net (loss)/income | $ | (386.8 | ) | $ | 452.8 | $ | (129.9 | ) | $ | 1,022.8 | |||||
Other comprehensive (loss)/income: | |||||||||||||||
Foreign currency translation adjustments | 234.3 | (41.6 | ) | 38.8 | (124.9 | ) | |||||||||
Unrealized gain/(loss) on available-for-sale securities (net of tax expense of $2.4 and $1.0 for the three and nine months ended September 30, 2016 and $nil for both the three and nine months ended September 30, 2015) | 15.1 | (2.0 | ) | 10.4 | 1.3 | ||||||||||
Hedging activities, net of tax expense of $1.2 and tax benefit of $0.5 for the three and nine months ended September 30, 2016, respectively and $nil for both the three and nine months ended September 30, 2015 | 2.2 | — | 0.4 | — | |||||||||||
Comprehensive (loss)/income | $ | (135.2 | ) | $ | 409.2 | $ | (80.3 | ) | $ | 899.2 |
June 30, | December 31, | |||||||
2016 | 2015 | |||||||
Foreign currency translation adjustments | $ | (377.6 | ) | $ | (182.1 | ) | ||
Unrealized holding loss on available-for-sale securities, net of taxes | (6.4 | ) | (1.7 | ) | ||||
Hedging activities, net of taxes | (1.8 | ) | - | |||||
Accumulated other comprehensive loss | $ | (385.8 | ) | $ | (183.8 | ) |
September 30, 2016 | December 31, 2015 | ||||||
Foreign currency translation adjustments | $ | (143.3 | ) | $ | (182.1 | ) | |
Unrealized holding gain/(loss) on available-for-sale securities, net of taxes | 8.7 | (1.7 | ) | ||||
Hedging activities, net of taxes | 0.4 | — | |||||
Accumulated other comprehensive loss | $ | (134.2 | ) | $ | (183.8 | ) |
Common stock number of shares Common stock Additional paid-in capital Treasury stock Accumulated other comprehensive loss Retained earnings Total equity As of January 1, 2016 601.1 $ 58.9 $ 4,486.3 $ (320.6 ) $ (183.8 ) $ 5,788.3 $ 9,829.1 Net income - - - - - 256.9 256.9 Other comprehensive loss net of tax - - - - (202.0 ) - (202.0 ) Options exercised 0.6 0.1 10.7 - - - 10.8 Share-based compensation - - 194.8 - - - 194.8 Tax benefit associated with exercise of stock options - - 3.8 - - - 3.8 Shares released by employee benefit trust to satisfy exercise of stock options - - - 18.3 - (18.1 ) 0.2 Shares issued for the acquisition of Baxalta 305.2 22.0 19,777.6 - - - 19,799.6 Dividends - - - - - (130.2 ) (130.2 ) As of June 30, 2016 906.9 $ 81.0 $ 24,473.2 $ (302.3 ) $ (385.8 ) $ 5,896.9 $ 29,763.0 Common stock number of shares Common stock Additional paid-in capital Treasury stock Accumulated other comprehensive loss Retained earnings Total equity As of January 1, 2016 601.1 $ 58.9 $ 4,486.3 $ (320.6 ) $ (183.8 ) $ 5,788.3 $ 9,829.1 Net loss — — — — — (129.9 ) (129.9 ) Other comprehensive income net of tax — — — — 49.6 — 49.6 Options exercised 4.6 0.4 90.0 — — — 90.4 Share-based compensation — — 269.6 — — — 269.6 Tax benefit associated with exercise of stock options — — 7.8 — — — 7.8 Shares released by employee benefit trust to satisfy exercise of stock options — — — 18.4 — (18.7 ) (0.3 ) Shares issued for the acquisition of Baxalta 305.2 22.0 19,777.6 — — — 19,799.6 Dividends — — — — — (130.2 ) (130.2 ) As of September 30, 2016 910.9 $ 81.3 $ 24,631.3 $ (302.2 ) $ (134.2 ) $ 5,509.5 $ 29,785.7
6 Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 256.9 | $ | 570.0 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 429.8 | 291.8 | ||||||
Share-based compensation | 194.8 | 44.3 | ||||||
Change in fair value of contingent consideration | (45.0 | ) | (255.7 | ) | ||||
Impairment of intangible assets | 8.9 | 523.3 | ||||||
Amortization of inventory fair value step-up | 293.5 | 16.3 | ||||||
Changes in deferred taxes | (329.2 | ) | (79.4 | ) | ||||
Other, net | 32.5 | (0.3 | ) | |||||
Changes in operating assets and liabilities | ||||||||
Increase in accounts receivable | (181.0 | ) | (84.9 | ) | ||||
Increase in sales deduction accruals | 66.4 | 37.3 | ||||||
Increase in inventory | (116.4 | ) | (37.4 | ) | ||||
Decrease in prepayments and other assets | 26.5 | 28.4 | ||||||
Increase/(decrease) in accounts and notes payable and other liabilities | 342.7 | (39.8 | ) | |||||
Net cash provided by operating activities | 980.4 | 1,013.9 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Movements in restricted cash | 67.2 | (19.5 | ) | |||||
Purchases of businesses, net of cash acquired | (17,476.2 | ) | (5,249.2 | ) | ||||
Purchases of non-current investments and PP&E | (179.1 | ) | (44.7 | ) | ||||
Proceeds from short-term investments | - | 67.0 | ||||||
Proceeds from sale of product rights | 5.6 | 8.8 | ||||||
Proceeds from disposal of non-current investments | - | 4.4 | ||||||
Other, net | (2.3 | ) | (0.9 | ) | ||||
Net cash used in investing activities | (17,584.8 | ) | (5,234.1 | ) | ||||
Nine Months Ended September 30, | |||||||
2016 | 2015 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net (loss)/income | $ | (129.9 | ) | $ | 1,022.8 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 877.8 | 457.4 | |||||
Share-based compensation | 269.6 | 70.8 | |||||
Amortization of deferred financing fees | 121.7 | 8.0 | |||||
Amortization of inventory fair value step-up | 1,097.3 | 23.0 | |||||
Changes in deferred taxes | (546.9 | ) | (178.3 | ) | |||
Change in fair value of contingent consideration | (34.8 | ) | (196.5 | ) | |||
Impairment of intangible assets | 8.9 | 523.3 | |||||
Impairment of property, plant and equipment | 89.2 | — | |||||
Other, net | 35.3 | (23.2 | ) | ||||
Changes in operating assets and liabilities | |||||||
Increase in accounts receivable | (411.2 | ) | (288.1 | ) | |||
Increase in sales deduction accruals | 108.2 | 100.0 | |||||
Increase in inventory | (228.0 | ) | (21.7 | ) | |||
(Increase)/decrease in prepayments and other assets | (66.4 | ) | 21.2 | ||||
Increase in accounts payable and other liabilities | 315.2 | 56.5 | |||||
Net cash provided by operating activities | 1,506.0 | 1,575.2 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Purchases of property, plant and equipment and non-current investments | (402.5 | ) | (67.3 | ) | |||
Purchases of businesses, net of cash acquired | (17,476.2 | ) | (5,553.4 | ) | |||
Proceeds from short-term investments | — | 67.0 | |||||
Proceeds from disposal of non-current investments | 0.6 | 18.5 | |||||
Movements in restricted cash | 68.3 | (48.0 | ) | ||||
Proceeds from sale of product rights | 7.8 | 14.5 | |||||
Other, net | (9.3 | ) | 2.7 | ||||
Net cash used in investing activities | (17,811.3 | ) | (5,566.0 | ) |
6 Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from revolving line of credit, long term and short term borrowings | 18,895.0 | 2,925.6 | ||||||
Repayment of revolving line of credit, long term and short term borrowings | (1,500.3 | ) | (1,530.9 | ) | ||||
Payment of dividend | (130.2 | ) | (110.2 | ) | ||||
Excess tax benefit associated with exercise of stock options | 5.1 | 27.0 | ||||||
Debt issuance costs | (112.3 | ) | (3.7 | ) | ||||
Contingent consideration payments | (4.2 | ) | (4.5 | ) | ||||
Other, net | 11.1 | (0.8 | ) | |||||
Net cash provided by financing activities | 17,164.2 | 1,302.5 | ||||||
Effect of foreign exchange rate changes on cash and cash equivalents | (1.9 | ) | (0.7 | ) | ||||
Net increase/(decrease) in cash and cash equivalents | 557.9 | (2,918.4 | ) | |||||
Cash and cash equivalents at beginning of period | 135.5 | 2,982.4 | ||||||
Cash and cash equivalents at end of period | $ | 693.4 | $ | 64.0 |
6 Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
Interest paid | (111.4 | ) | (9.9 | ) | ||||
Income taxes (paid)/repaid, net | (253.7 | ) | - | |||||
Nine Months Ended September 30, | |||||||
2016 | 2015 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Proceeds from revolving line of credit, long term and short term borrowings | 31,742.3 | 3,650.8 | |||||
Repayment of revolving line of credit, long term and short term borrowings | (14,632.9 | ) | (2,486.1 | ) | |||
Payment of dividend | (130.2 | ) | (110.2 | ) | |||
Debt issuance costs | (171.0 | ) | (3.3 | ) | |||
Proceeds from exercise of options | 98.9 | — | |||||
Other, net | (6.5 | ) | 3.7 | ||||
Net cash provided by financing activities | 16,900.6 | 1,054.9 | |||||
Effect of foreign exchange rate changes on cash and cash equivalents | (2.2 | ) | (1.6 | ) | |||
Net increase/(decrease) in cash and cash equivalents | 593.1 | (2,937.5 | ) | ||||
Cash and cash equivalents at beginning of period | 135.5 | 2,982.4 | |||||
Cash and cash equivalents at end of period | $ | 728.6 | $ | 44.9 | |||
Supplemental information: | |||||||
Interest paid | 223.4 | 13.1 | |||||
Income taxes paid, net | 355.8 | 20.5 |
1. | Summary of Significant Accounting Policies |
statements. respectively.statements but does not include all disclosures required by U.S. GAAP. Incorporated (“Baxalta”) for $32.4 billion, representing the preliminary fair value of purchase consideration. The Company’s Unaudited Consolidated Financial Statements include the results of Baxalta from the date of acquisition. For further details regarding the acquisition, please refer to Note 2, Business Combinations, of these Unaudited Consolidated Financial Statements.the Selling, General and Administrative line item on the Unaudited Consolidated Statements of Operations. Accordingly, the Company reclassified the Amortization of Acquired Intangibles from the Selling, General and Administrative line item in comparative periods to conform to the current classification. Shire’s most recent Annual Report onthe Shire 2015 Form 10-K. The following significant accounting policies have been updated as a result of the Baxalta acquisition. interestexpense, and primarily relate to forecasted third-party sales denominated in foreign currencies and forecasted intercompany sales denominated in foreign currencies, and anticipated issuances of debt.assets / assets/liabilities, with changes in the fair value recognized in the Consolidated Statements of Operations. The cash flows relating to these instruments are presented within net cash provided by operating activities in the consolidated statementConsolidated Statement of cash flows,Cash Flows, unless the derivative instruments are economically hedging specific investing or financing activities.adjustments.Shireadjustments. Shire adopted this guidance as of January 1, 2016 with prospective application. The adoption of this guidance impacted the recognition and disclosure of measurement period adjustments identified during the three months ended September 30, 2016 related to the Baxalta acquisition. Refer to Note 2, Business Combinations, of these Unaudited Consolidated Financial Statements for further information.Company’s consolidatedCompany's financial position or results of operations or cash flows.operations.
To be adopted in future periods
operations.is currently evaluatingdoes not believe the potentialadoption of this guidance will have a material impact on its financial position andor results of operations of adopting this guidance.an update which involves severala new standard that amends certain aspects of accounting and disclosure requirements of financial instruments, including the requirement that equity investments with readily determinable fair values be measured at fair value with changes in fair value recognized in our results of operations. The new standard does not apply to investments accounted for under the equity method of accounting or those that result in consolidation of the investee. Equity investments that do not have readily determinable fair values may be measured at fair value or at cost minus impairment adjusted for changes in observable prices. A financial liability that is measured at fair value in accordance with the fair value option is required to be presented separately in Other Comprehensive Income for the recognition and measurementportion of certain equity investments. This update impacts all non-equity method investments and has consequencesthe total change in the fair value resulting from change in the instrument-specific credit risk. In addition, a valuation allowance should be evaluated on deferred tax assets related to available-for-sale debt securities in combination with other deferred income tax valuation allowances and certain financial statement related presentation and disclosure requirements. These amendments areassets. The new standard will be effective for the Company as of January 1, 2018. Early adoption is not permitted. The Company is currently evaluating the method of adoption and the potential impact on its financial position and results of operations of adopting this guidance.an update whicha new standard that requires recognition of the income tax effects of vested or settled awards in the income statement and involves several other aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. These amendments areThe new standard will be effective for the Company as ofus on January 1, 2017. Early adoption is permitted. The Company is currently evaluating the method of adoption and the potential impact on its financial position, and results of operations and statement of cash flow of adopting this guidance.2. Business Combinations
Estimated Fair Value (in millions) ___________________ Cash paid to shareholders $ 12,366.7 Fair value of stock issued to shareholders 19,353.2 Fair value of partially vested stock options and RSUs assumed 497.6 Contingent consideration payable 166.0 Total Purchase Consideration $ 32,383.5 (in millions) Estimated fair value Cash paid to shareholders $ 12,366.7 Fair value of stock issued to shareholders 19,353.2 Fair value of partially vested stock options and RSUs assumed 497.6 Contingent consideration payable 161.0 Total Purchase Consideration $ 32,378.5 21, Share based22, Share-based compensation plans, to these Unaudited Consolidated Financial Statements.and pre-tax loss included in the Company’s Unaudited Consolidated Statements of Operations for both the three and sixnine months ended JuneSeptember 30, 2016 is $580.3$1,586.4 million and $419.8$2,166.7 million, respectively. The pre-tax loss in bothAfter the three monthsclosing of the acquisition, the Company began integrating Baxalta and six months ended June 30, 2016 includes chargesas such the combined business is now sharing various research and development and selling, general and administrative functions. As a result, computing a separate measure of Baxalta’s stand-alone profitability for periods after the unwind of inventory fair value adjustments of $266.0 million, intangible asset amortization of $74.1 million and acquisition and integration costs of $272.9 million.date is not practical.
(in millions) | Preliminary fair value | |||
ASSETS | ||||
Current assets: | ||||
Cash and cash equivalents | $ | 583.2 | ||
Accounts receivable, net | 1,382.8 | |||
Inventories | 5,341.1 | |||
Other current assets | 362.2 | |||
Total current assets | 7,669.3 | |||
Non-current assets: | ||||
Property, plant and equipment, net | 5,687.7 | |||
Investments | 128.2 | |||
Goodwill | 6,106.4 | |||
Other intangible assets, net | ||||
- Currently marketed products | 24,550.0 | |||
- In-Process Research and Development (“IPR&D”) | 2,940.0 | |||
- Contract based arrangements | 72.2 | |||
Other non-current assets | 103.3 | |||
Total assets | 47,257.1 | |||
LIABILITIES AND EQUITY | ||||
Current liabilities: | ||||
Accounts payable and accrued expenses | 1,509.5 | |||
Other current liabilities | 15.4 | |||
Non-current liabilities: | ||||
Assumed indebtedness | 5,424.9 | |||
Deferred tax liability | 6,831.7 | |||
Other non-current liabilities | 1,092.1 | |||
Total liabilities | 14,873.6 | |||
Preliminary fair value of identifiable assets acquired and liabilities assumed | $ | 32,383.5 | ||
Consideration | ||||
Preliminary fair value of purchase consideration | $ | 32,383.5 |
(in millions) | Preliminary values as of June 30, 2016 | Measurement period adjustments | Preliminary values as of September 30, 2016 | ||||||
ASSETS | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 583.2 | $ | — | $ | 583.2 | |||
Accounts receivable, net | 1,382.8 | 17.0 | 1,399.8 | ||||||
Inventories | 5,341.1 | (276.4 | ) | 5,064.7 | |||||
Other current assets | 362.2 | — | 362.2 | ||||||
Total current assets | 7,669.3 | (259.4 | ) | 7,409.9 | |||||
Property, plant and equipment, net | 5,687.7 | (118.4 | ) | 5,569.3 | |||||
Investments | 128.2 | — | 128.2 | ||||||
Goodwill | 6,106.4 | 1,894.6 | 8,001.0 | ||||||
Other intangible assets, net | |||||||||
Currently marketed products | 24,550.0 | (400.0 | ) | 24,150.0 | |||||
In-Process Research and Development ("IPR&D") | 2,940.0 | (1,460.0 | ) | 1,480.0 | |||||
Contract based arrangements | 72.2 | 10.0 | 82.2 | ||||||
Other non-current assets | 103.3 | — | 103.3 | ||||||
Total assets | $ | 47,257.1 | $ | (333.2 | ) | $ | 46,923.9 | ||
LIABILITIES | |||||||||
Current liabilities: | |||||||||
Accounts payable and accrued expenses | $ | 1,509.5 | $ | 27.5 | $ | 1,537.0 | |||
Other current liabilities | 15.4 | 77.5 | 92.9 | ||||||
Long-term borrowings | 5,424.9 | — | 5,424.9 | ||||||
Deferred tax liability | 6,831.7 | (446.4 | ) | 6,385.3 | |||||
Other non-current liabilities | 1,092.1 | 13.2 | 1,105.3 | ||||||
Total liabilities | 14,873.6 | (328.2 | ) | 14,545.4 | |||||
Preliminary fair value of identifiable assets acquired and liabilities assumed | $ | 32,383.5 | $ | (5.0 | ) | $ | 32,378.5 | ||
Consideration | |||||||||
Preliminary fair value of purchase consideration | $ | 32,383.5 | $ | (5.0 | ) | $ | 32,378.5 |
The purchase price allocation is preliminary pending final determination of the fair values of certain assets and liabilities. As of JuneSeptember 30, 2016, certain items related to the fair values of prepaid assets, inventories, intangible assets, property plantPP&E, other current and equipment (“PP&E”), deferred rent, deferred revenue,non-current liabilities and current and deferred taxes have not been finalized and may be subject to change as additional information is received and certain tax returns are finalized. The finalization of these matters may result in changes to goodwill the underlying assets, liabilities
Other intangible assetsCurrently marketed products totaling $24,550.0$24,150.0 million relate to intellectual property (“IP”) rights acquired for Baxalta’s currently marketed products. The estimated useful life of the intangible assets related to currently marketed products intangible assets range from 11 to 38 years (weighted average 30 years), with amortization being recorded on a straight line basis.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
(in millions) | 2015 | 2016 | 2015 | ||||||||
Revenues | $ | 3,250.0 | $ | 10,193.5 | $ | 9,086.0 | |||||
Net (loss)/income from continuing operations | (52.0 | ) | 1,406.6 | (1,152.1 | ) | ||||||
Per share amounts: | |||||||||||
Net (loss)/income from continuing operations per share - basic | $ | (0.06 | ) | $ | 1.94 | $ | (1.29 | ) | |||
Net (loss)/income from continuing operations per share - diluted | $ | (0.06 | ) | $ | 1.92 | $ | (1.29 | ) |
3 Months Ended June 30, | 6 Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(in millions) | ||||||||||||||||
Revenues | $ | 3,484.1 | $ | 2,986.6 | $ | 6,741.4 | $ | 5,836.0 | ||||||||
Net income/(loss) from continuing operations | 716.0 | (401.4 | ) | 1,177.3 | (976.1 | ) | ||||||||||
Per share amounts: | ||||||||||||||||
Net income/(loss) from continuing operations per share - basic | $ | 0.81 | $ | (0.45 | ) | $ | 1.33 | $ | (1.09 | ) | ||||||
Net income/(loss) from continuing operations per share - diluted | $ | 0.81 | $ | (0.45 | ) | $ | 1.32 | $ | (1.09 | ) |
(i) | an adjustment to increase net income for the |
(ii) | an adjustment to |
(iii) | an adjustment to increase amortization expense for the |
(iv) | an adjustment to decrease net income for the |
and the preliminary fair value of the contingent value right of $396.0 million (maximum payable $646.0 million). The assets acquired and the liabilities assumed from Dyax have been recorded at their preliminary fair value as of January 22, 2016, the date of acquisition. The Company’s Unaudited Consolidated Financial Statements include the results of Dyax as of January 22, 2016.
The amount of Dyax’s post-acquisition revenues and pre-tax losses included in the Company’s Unaudited Consolidated Statements of Operations for the three and nine months ended JuneSeptember 30, 2016 were $24.0is $16.7 million and $131.9$51.3 million, respectively. The pre-tax loss includes charges onAfter the unwindclosing of inventory fair value adjustmentsthe acquisition, the Company began integrating Dyax and as such the combined business is now sharing various research and development and selling, general and administrative functions. As a result, computing a separate measure of $1.5 million, intangible assets amortization of $8.0 million and integration costs of $9.3 million.
The amount of Dyax’s post-acquisition revenues and pre-tax losses included inDyax's stand-alone profitability for periods after the Company’s Unaudited Consolidated Statements of Operations for the six months ended June 30, 2016 were $34.6 million and $186.4 million, respectively. The pre-tax loss includes charges on the unwind of inventory fair value adjustments of $2.6 million, intangible assets amortization of $14.0 million and integration costs of $30.3 million.
acquisition date is not practical.
(in millions) | Fair value | |||
ASSETS | ||||
Current assets: | ||||
Cash and cash equivalents | $ | 241.2 | ||
Accounts receivable, net | 13.3 | |||
Inventories | 20.2 | |||
Other current assets | 8.1 | |||
Total current assets | 282.8 | |||
Non-current assets: | ||||
Property, plant and equipment, net | 5.8 | |||
Goodwill | 2,727.9 | |||
Other intangible assets, net | ||||
- Currently marketed products | 135.0 | |||
-IPR&D | 4,100.0 | |||
- Contract based royalty arrangements | 425.0 | |||
Other non-current assets | 28.3 | |||
Total assets | 7,704.8 | |||
LIABILITIES AND EQUITY | ||||
Current liabilities: | ||||
Accounts payable and accrued expenses | 30.0 | |||
Other current liabilities | 1.7 | |||
Non-current liabilities: | ||||
Deferred tax liability | 1,341.7 | |||
Other non-current liabilities | 1.4 | |||
Total liabilities | 1,374.8 | |||
Preliminary fair value of identifiable assets acquired and liabilities assumed | $ | 6,330.0 | ||
Consideration | ||||
Preliminary fair value of purchase consideration | $ | 6,330.0 |
(in millions) | Fair value | ||
ASSETS | |||
Current assets: | |||
Cash and cash equivalents | $ | 241.2 | |
Accounts receivable, net | 22.5 | ||
Inventories | 20.2 | ||
Other current assets | 8.1 | ||
Total current assets | 292.0 | ||
Property, plant and equipment, net | 5.8 | ||
Goodwill | 2,688.8 | ||
Other intangible assets, net | |||
Currently marketed projects | 135.0 | ||
IPR&D | 4,100.0 | ||
Contract based royalty arrangements | 425.0 | ||
Other non-current assets | 28.6 | ||
Total assets | $ | 7,675.2 | |
LIABILITIES | |||
Current liabilities: | |||
Accounts payable and accrued expenses | $ | 30.0 | |
Other current liabilities | 1.7 | ||
Deferred tax liability | 1,312.1 | ||
Other non-current liabilities | 1.4 | ||
Total liabilities | 1,345.2 | ||
Preliminary fair value of identifiable assets acquired and liabilities assumed | $ | 6,330.0 | |
Consideration | |||
Preliminary fair value of purchase consideration | $ | 6,330.0 |
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.
Other intangible assets
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 Company's management and (ii) are based on information, expectations and assumptions that would be available to a market participant.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
(in millions) | 2015 | 2016 | 2015 | ||||||||
Revenues | $ | 1,679.7 | $ | 7,596.4 | $ | 4,772.5 | |||||
Net income from continuing operations | 438.0 | 25.9 | 837.1 | ||||||||
Per share amounts: | |||||||||||
Net income from continuing operations per share - basic | $ | 0.74 | $ | 0.04 | $ | 1.42 | |||||
Net income from continuing operations per share - diluted | $ | 0.74 | $ | 0.04 | $ | 1.41 |
3 Months Ended June 30, | 6 Months Ended June 30, | |||||||||||||||
(in millions) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Revenues | $ | 2,429.1 | $ | 1,584.0 | $ | 4,144.3 | $ | 3,092.8 | ||||||||
Net income from continuing operations | 88.6 | 128.3 | 490.2 | 406.3 | ||||||||||||
Per share amounts: | ||||||||||||||||
Net income from continuing operations per share - basic | $ | 0.13 | $ | 0.22 | $ | 0.77 | $ | 0.69 | ||||||||
Net income from continuing operations per share - diluted | $ | 0.13 | $ | 0.22 | $ | 0.77 | $ | 0.69 |
(i) | an adjustment to increase net income for the |
(ii) | an adjustment to decrease net income for the three and |
(iii) | an adjustment to increase amortization expense for the nine months ended September 30, 2016 by $1.3 million and a corresponding adjustment to decrease net income for the three and |
(iv) | an adjustment to record interest expense for the three and |
Fair value | ||||
(in millions) | ||||
ASSETS | ||||
Current assets: | ||||
Cash and cash equivalents | $ | 41.6 | ||
Short-term investments | 67.0 | |||
Accounts receivable | 33.4 | |||
Inventories | 89.4 | |||
Other current assets | 11.1 | |||
Total current assets | 242.5 | |||
Non-current assets: | ||||
Property, plant and equipment, net | 4.8 | |||
Goodwill | 1,551.0 | |||
Other intangible assets | ||||
- Currently marketed products | 4,640.0 | |||
- Royalty rights (categorized as "Other amortized intangible assets" ) | 353.0 | |||
Total assets | 6,791.3 | |||
LIABILITIES | ||||
Current liabilities: | ||||
Accounts payable and other current liabilities | 75.7 | |||
Short-term debt | 27.4 | |||
Non-current liabilities: | ||||
Long-term debt, less current portion | 78.9 | |||
Deferred tax liabilities | 1,385.2 | |||
Other non-current liabilities | 4.5 | |||
Total liabilities | 1,571.7 | |||
Fair value of identifiable assets acquired and liabilities assumed | $ | 5,219.6 | ||
Consideration | _______________ | |||
Cash consideration paid | $ | 5,219.6 |
(in millions) | Fair value | ||
ASSETS | |||
Current assets: | |||
Cash and cash equivalents | $ | 41.6 | |
Short-term investments | 67.0 | ||
Accounts receivable | 33.4 | ||
Inventories | 89.4 | ||
Other current assets | 11.1 | ||
Total current assets | 242.5 | ||
Property, plant and equipment, net | 4.8 | ||
Goodwill | 1,551.0 | ||
Other intangible assets | |||
Currently marketed products | 4,640.0 | ||
Royalty rights (categorized as "Other amortized intangible assets") | 353.0 | ||
Total assets | $ | 6,791.3 | |
LIABILITIES | |||
Current liabilities: | |||
Accounts payable and other current liabilities | $ | 75.7 | |
Short-term debt | 27.4 | ||
Long-term debt, less current portion | 78.9 | ||
Deferred tax liabilities | 1,385.2 | ||
Other non-current liabilities | 4.5 | ||
Total liabilities | 1,571.7 | ||
Fair value of identifiable assets acquired and liabilities assumed | $ | 5,219.6 | |
Consideration | |||
Cash consideration paid | $ | 5,219.6 |
Other intangible assets
The fair value of these royalty rights has been estimated using an income approach, based on the present value of incremental after tax cash flows attributable to each royalty right.
3 Months Ended June 30, | 6 Months Ended June 30, | |||||||
2015 | 2015 | |||||||
(in millions) | ||||||||
Revenues | 1,557.6 | 3,075.9 | ||||||
Net income from continuing operations | 167.8 | 526.6 | ||||||
Per share amounts: | ||||||||
Net income from continuing operations per share - basic | $ | 0.28 | $ | 0.96 | ||||
Net income from continuing operations per share - diluted | $ | 0.28 | $ | 0.95 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
(in millions) | 2015 | 2015 | |||||
Revenues | $ | 1,655.0 | $ | 4,730.9 | |||
Net income from continuing operations | 479.1 | 1,005.6 | |||||
Per share amounts: | |||||||
Net income from continuing operations per share - basic | $ | 0.81 | $ | 1.70 | |||
Net income from continuing operations per share - diluted | $ | 0.81 | $ | 1.69 |
(i) | an adjustment to increase net income for the three and |
(ii) | an adjustment to increase net income by |
(iii) | an adjustment to increase amortization expense for the three and |
3. | Collaborative and other licensing arrangements |
Merrimack Pharmaceuticals, Inc.
accordance with its terms.
product is approved.
On
Unfunded Contingent Payments
At June 30, 2016,financial obligations under the Company’s unfunded contingent milestone payments associated with all of its collaborative and other licensing arrangements acquired from Baxalta totaled $1.8 billion. This total includes contingent payments associated with R&D costs funded by collaboration partners through June 30, 2016. This total excludes contingent royalty and profit-sharing payments, contingent payment liabilities arising from business combinations, potential milestone payments and option exercise fees associated with certain of the Company’s collaboration agreements that become payable only if the Company chooses to exercise one or more of its options and potential contingent payments associated with R&D costs that may be funded by collaboration partners in the future.
4. | Integration and Acquisition Costs |
2019 and the integration of Dyax is substantially complete as of September 30, 2016.
September 30, 2016 :
(in millions) | Severance and Employee Benefits | ||
As of January 1, 2016 | $ | — | |
Amount charged to integration costs | 202.3 | ||
Paid/utilized | (128.1 | ) | |
As of September 30, 2016 | $ | 74.2 |
5. | Reorganization Costs |
6. | Discontinued Operations |
7. | Accounts Receivable |
2016 | 2015 | |||||||
(in millions) | ||||||||
As of January 1, | $ | 55.8 | $ | 48.5 | ||||
Provision charged to operations | 269.6 | 186.6 | ||||||
Payments/credits related to sales | (201.0 | ) | (181.6 | ) | ||||
As of June 30, | $ | 124.4 | $ | 53.5 |
(in millions) | 2016 | 2015 | |||||
As of January 1, | $ | 55.8 | $ | 48.5 | |||
Provision charged to operations | 569.9 | 293.8 | |||||
Payments/credits related to sales | (498.3 | ) | (286.6 | ) | |||
As of September 30, | $ | 127.4 | $ | 55.7 |
8. | Inventories |
At June 30, 2016, inventories include $4,823.6 million in respect of the fair value of inventories acquired with Baxalta, stated at fair value (being estimated selling price less estimated costs to complete and sell). All other inventories
June 30, | December 31, | |||||||
2016 | 2015 | |||||||
(in millions) | ||||||||
Finished goods | $ | 1,389.2 | $ | 184.9 | ||||
Work-in-progress | 3,409.0 | 302.0 | ||||||
Raw materials | 1,000.5 | 148.5 | ||||||
$ | 5,798.7 | $ | 635.4 |
(in millions) | September 30, 2016 | December 31, 2015 | |||||
Finished goods | $ | 1,597.6 | $ | 184.9 | |||
Work-in-progress | 2,431.3 | 302.0 | |||||
Raw materials | 828.2 | 148.5 | |||||
$ | 4,857.1 | $ | 635.4 |
9. | Property, plant and equipment |
June 30, | December 31, | |||||||
2016 | 2015 | |||||||
(in millions) | ||||||||
Land | $ | 356.2 | $ | 96.7 | ||||
Buildings and leasehold improvements | 1,965.8 | 606.4 | ||||||
Machinery, equipment and other | 2,158.3 | 827.4 | ||||||
Assets under construction | 2,963.2 | 93.7 | ||||||
7,443.5 | 1,624.2 | |||||||
Less: Accumulated depreciation | (847.2 | ) | (796.1 | ) | ||||
$ | 6,596.3 | $ | 828.1 |
(in millions) | September 30, 2016 | December 31, 2015 | |||||
Land | $ | 356.3 | $ | 96.7 | |||
Buildings and leasehold improvements | 1,999.5 | 606.4 | |||||
Machinery, equipment and other | 2,440.5 | 827.4 | |||||
Assets under construction | 2,647.0 | 93.7 | |||||
7,443.3 | 1,624.2 | ||||||
Less: Accumulated depreciation | (915.6 | ) | (796.1 | ) | |||
$ | 6,527.7 | $ | 828.1 |
10. | Intangible Assets |
(in millions) | IP rights for marketed products | Other intangible assets | IPR&D Unamortized | Total | ||||||||||||
June 30, 2016 | ||||||||||||||||
Gross acquired intangible assets | $ | 33,929.5 | $ | 872.2 | $ | 8,371.8 | $ | 43,173.5 | ||||||||
Accumulated amortization | (2,142.8 | ) | (140.4 | ) | — | (2,283.2 | ) | |||||||||
Other intangible assets, net | $ | 31,786.7 | $ | 731.8 | $ | 8,371.8 | $ | 40,890.3 | ||||||||
December 31, 2015 | ||||||||||||||||
Gross acquired intangible assets | $ | 9,371.9 | $ | 375.0 | $ | 1,362.0 | $ | 11,108.9 | ||||||||
Accumulated amortization | (1,852.1 | ) | (83.5 | ) | — | (1,935.6 | ) | |||||||||
Other intangible assets, net | $ | 7,519.8 | $ | 291.5 | $ | 1,362.0 | $ | 9,173.3 |
(in millions) | Currently marketed products | IPR&D | Other intangible assets | Total | |||||||||||
September 30, 2016 | |||||||||||||||
Gross acquired intangible assets | $ | 34,104.6 | $ | 6,522.8 | $ | 882.2 | $ | 41,509.6 | |||||||
Accumulated amortization | (2,467.7 | ) | — | (170.4 | ) | (2,638.1 | ) | ||||||||
Other intangible assets, net | $ | 31,636.9 | $ | 6,522.8 | $ | 711.8 | $ | 38,871.5 | |||||||
December 31, 2015 | |||||||||||||||
Gross acquired intangible assets | $ | 9,371.9 | $ | 1,362.0 | $ | 375.0 | $ | 11,108.9 | |||||||
Accumulated amortization | (1,852.1 | ) | — | (83.5 | ) | (1,935.6 | ) | ||||||||
Other intangible assets, net | $ | 7,519.8 | $ | 1,362.0 | $ | 291.5 | $ | 9,173.3 |
Intangible Assets | ||||||||
2016 | 2015 | |||||||
(in millions) | ||||||||
As of January 1, | $ | 9,173.3 | $ | 4,934.4 | ||||
Acquisitions | 32,222.2 | 5,167.8 | ||||||
Amortization charged | (347.6 | ) | (219.6 | ) | ||||
Impairment charges | (8.9 | ) | (523.3 | ) | ||||
Foreign currency translation | (148.7 | ) | (48.9 | ) | ||||
As of June 30, | $ | 40,890.3 | $ | 9,310.4 |
(in millions) | 2016 | 2015 | |||||
As of January 1, | $ | 9,173.3 | $ | 4,934.4 | |||
Acquisitions | 30,377.7 | 5,473.7 | |||||
Amortization charged | (702.5 | ) | (352.3 | ) | |||
Impairment charges | (8.9 | ) | (523.3 | ) | |||
Foreign currency translation | 31.9 | (81.9 | ) | ||||
As of September 30, | $ | 38,871.5 | $ | 9,450.6 |
(in millions) | Anticipated future amortization | |||
2016 (remaining six months) | $ | 706.1 | ||
2017 | 1,411.3 | |||
2018 | 1,404.6 | |||
2019 | 1,325.8 | |||
2020 | 1,321.7 | |||
2021 | 1,315.4 | |||
29
(in millions) | Anticipated future amortization | ||
2016 (remaining three months) | $ | 358.1 | |
2017 | 1,429.9 | ||
2018 | 1,424.2 | ||
2019 | 1,344.8 | ||
2020 | 1,340.9 | ||
2021 | 1,336.5 |
11. | Goodwill |
2016 | 2015 | |||||||
(in millions) | ||||||||
As of January 1, | $ | 4,147.8 | $ | 2,474.9 | ||||
Acquisitions | 8,834.3 | 1,720.6 | ||||||
Foreign currency translation | (19.7 | ) | (22.2 | ) | ||||
As of June 30, | $ | 12,962.4 | $ | 4,173.3 |
(in millions) | 2016 | 2015 | |||||
As of January 1, | $ | 4,147.8 | $ | 2,474.9 | |||
Acquisitions | 10,689.8 | 1,837.0 | |||||
Foreign currency translation | 13.0 | (22.3 | ) | ||||
As of September 30, | $ | 14,850.6 | $ | 4,289.6 |
12. | Fair Value Measurement |
JuneSeptember 30, 2016 and December 31, 2015, 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). Fair value (in millions) Total Level 1 Level 2 Level 3 At June 30, 2016 Financial assets: Marketable equity securities $ 54.4 $ 54.4 $ - $ - Marketable debt securities 16.8 3.7 13.1 Contingent consideration receivable 17.5 - - 17.5 Derivative instruments 65.3 - 65.3 - Financial liabilities: Derivative instruments 40.7 - 40.7 - Contingent consideration payable $ 993.8 $ - $ - $ 993.8 (in millions) Total Level 1 Level 2 Level 3 At December 31, 2015 Financial assets: Marketable equity securities $ 17.2 $ 17.2 $ - $ - Contingent consideration receivable 13.8 - - 13.8 Derivative contracts 1.9 - 1.9 - Financial liabilities: Derivative contracts 11.5 - 11.5 - Contingent consideration payable $ 475.9 $ - $ - $ 475.9 Fair value (in millions) Total Level 1 Level 2 Level 3 At September 30, 2016 Financial assets: Marketable equity securities $ 69.7 $ 69.7 $ — $ — Marketable debt securities 16.5 3.7 12.8 — Contingent consideration receivable 15.7 — — 15.7 Derivative instruments 50.6 — 50.6 — Total assets 152.5 73.4 63.4 15.7 Financial liabilities: Derivative instruments 13.3 — 13.3 — Contingent consideration payable 996.7 — — 996.7 Total liabilities $ 1,010.0 $ — $ 13.3 $ 996.7 (in millions) Total Level 1 Level 2 Level 3 At December 31, 2015 Financial assets: Marketable equity securities $ 17.2 $ 17.2 $ — $ — Contingent consideration receivable 13.8 — — 13.8 Derivative contracts 1.9 — 1.9 — Total assets 32.9 17.2 1.9 13.8 Financial liabilities: Derivative contracts 11.5 — 11.5 — Contingent consideration payable 475.9 — — 475.9 Total liabilities $ 487.4 $ — $ 11.5 $ 475.9 12,13, Financial Instruments, to these Unaudited Consolidated Financial Statements.
Certain estimates and judgments were required to develop the fair value amounts. The estimated fair value amounts shown above are not necessarily indicative of the amounts that the Company would realize upon disposition, nor do they indicate the Company’s intent or ability to dispose of the financial instrument.
Contingent consideration receivable | ||||||||
2016 | 2015 | |||||||
(in millions) | ||||||||
Balance at January 1, | $ | 13.8 | $ | 15.9 | ||||
Change in fair value included in earnings | 2.1 | 8.6 | ||||||
Other | 1.6 | (7.8 | ) | |||||
Balance at June 30, | $ | 17.5 | $ | 16.7 | ||||
Contingent consideration payable | ||||||||
2016 | 2015 | |||||||
(in millions) | ||||||||
Balance at January 1, | $ | 475.9 | $ | 629.9 | ||||
Additions | 562.5 | 92.1 | ||||||
Change in fair value included in earnings | (45.0 | ) | (255.7 | ) | ||||
Other | 0.4 | (1.6 | ) | |||||
Balance at June 30, | $ | 993.8 | $ | 464.7 | ||||
Contingent consideration receivable | |||||||
(in millions) | 2016 | 2015 | |||||
Balance at January 1, | $ | 13.8 | $ | 15.9 | |||
Change in fair value included in earnings | 3.6 | 9.8 | |||||
Other | (1.7 | ) | (10.8 | ) | |||
Balance at September 30, | $ | 15.7 | $ | 14.9 |
Contingent consideration payable | |||||||
(in millions) | 2016 | 2015 | |||||
Balance at January 1, | $ | 475.9 | $ | 629.9 | |||
Additions | 557.0 | 92.8 | |||||
Change in fair value included in earnings | (34.8 | ) | (196.5 | ) | |||
Other | (1.4 | ) | (5.6 | ) | |||
Balance at September 30, | $ | 996.7 | $ | 520.6 |
Financial assets:Fair Value at the Measurement DateAt June 30, 2016Fair valueValuationtechniqueSignificant unobservable inputsRange(in millions, except percentages)_____________________________________________Contingent consideration receivable$17.5 Income approach (probability weighted discounted cash flow)• Probability weightings applied to different sales scenarios• 10 to 90% • Future forecast consideration receivable based on contractual terms with purchaser• $0 to $25million• Assumed market participant discount rate• 8.4%________________________________________________Financial liabilities:Fair Value at the Measurement DateAt June 30, 2016Fair valueValuationtechniqueSignificant unobservable inputsRange(in millions, except percentages)_____________________________________________Contingent consideration payable$993.8 Income approach (probability weighted discounted cash flow)• Cumulative probability of milestones being achieved• 1 to 90%• Assumed market participant discount rate• 1.5 to 12.4%• Periods in which milestones are expected to be achieved• 2016 to 2036• Forecast quarterly royalties payable on net sales of relevant products• $1.4 to $3.8million________________________________________________Financial assets: Fair Value at the Measurement Date At September 30, 2016 (in millions, except percentages) Fair value Significant unobservable inputs Range Contingent consideration receivable $ 15.7 Income approach (probability weighted discounted cash flow) • Probability weightings applied to different sales scenarios • 10 to 90% • Future forecast consideration receivable based on contractual terms with purchaser • $0 to $23
million • Assumed market participant discount rate • 8.4% Financial liabilities: Fair Value at the Measurement Date At September 30, 2016 Significant unobservable inputs Range Contingent consideration payable $ 996.7 Income approach (probability weighted discounted cash flow) • Cumulative probability of milestones being achieved • 4 to 90% • Assumed market participant discount rate • 1.2 to 10.5% • Periods in which milestones are expected to be achieved • 2016 to 2030 • Forecast quarterly royalties payable on net sales of relevant products • $3.5 to $7.1
million
Financial assets and liabilities that are not measured at fair value on a recurring basis
June 30, 2016 | December 31, 2015 | |||||||||||||||
(in millions) | Carrying amount | Fair value | Carrying amount | Fair value | ||||||||||||
Financial liabilities: | ||||||||||||||||
Senior notes | $ | 5,114.0 | $ | 5,114.0 | $ | - | $ | - | ||||||||
Capital lease obligation | 348.9 | 348.9 | 13.4 | 13.4 |
September 30, 2016 | December 31, 2015 | ||||||||||||||
(in millions) | Carrying amount | Fair value | Carrying amount | Fair value | |||||||||||
Financial liabilities: | |||||||||||||||
Senior notes | $ | 12,037.0 | $ | 12,080.9 | $ | — | $ | — | |||||||
Baxalta notes | 5,104.4 | 5,467.7 | — | — | |||||||||||
Capital lease obligation | 348.6 | 348.6 | 13.4 | 13.4 |
13. | Financial Instruments |
The value of revenues and operating expenses measured in U.S. dollars is therefore subject to changes in foreign currency exchange rates. In order to mitigate these changes, the Company uses foreign currency forward contracts to lock in exchange rates associated with a portion of its forecasted international revenues and operating expenses. The main trading currencies of the Company are the U.S. dollar, Euro, Pounds Sterling, Swiss Franc, Canadian dollar and Japanese Yen. The Company does not have credit risk related contingent features or collateral linked to the derivatives. execute its contractual obligations. As of Transactional exposure arises where transactions occur in currencies different to the functional currency of the relevant subsidiary. The main trading currencies of the Company are the U.S. dollar, Pounds Sterling, Swiss Franc, Canadian dollar, Japanese Yen and the Euro. The Company did not have credit risk related contingent features or collateral linked to the derivatives. has assumed foreign currency forward contracts and elected to apply hedge accounting. These contracts have been designated as cash flow hedges and accordingly, to the extent effective, any unrealized gains or losses on these foreign currency forward contracts are reported in AOCI. Realized gains and losses for the effective portion of such contracts are recognized in revenue or cost of sales when the sale of product in the currency being hedged is recognized. To the extent ineffective, hedge transaction gains and losses are reported in Other income/(expense), net. The amount of ineffectiveness for the three and sixnine months ended JuneSeptember 30, 2016 was immaterial.At June$519.0$350.0 million with a maximum duration of 12nine months. The Company did not have any designated forward contracts as of December 31, 2015. As of September 30, 2016, the fair value of these contracts was a net liability of $3.3 million (2015: nil) presented within accounts payable and accrued expenses. The portion of the fair value of these foreign currency forward contracts that was included in AOCI in total equity reflected net losses of $3.4$0.1 million as of JuneSeptember 30, 2016. The Company expects all contracts to be settled over the next 12nine months and any amounts in AOCI to be reported as an adjustment to revenue or cost of sales. The Company considers the impact of its and its counterparties’ credit risk on the fair value of the contracts as well as the ability of each party toJuneSeptember 30, 2016, credit risk did not change the fair value of the Company’s foreign currency forward contracts.hedge earnings frommitigate the effects of foreign exchange relatingcurrency risk related to certain of the Company’sbalance sheet positions, including intercompany and third-party receivables and payables denominated in a foreign currency. Thesepayables. The Company has not elected hedge accounting for these derivative instruments generally are not formally designated as hedges, the termsduration of these instruments generally do not exceedcontracts is typically three months and the changeor less. The changes in fair value of these derivatives are reported in earnings. The notional amount of undesignated derivative instruments was $668.0$508.8 million and $625.5$639.6 million as of JuneSeptember 30, 2016 and 2015, respectively.$37.6$26.1 million as of JuneSeptember 30, 2016. Upon acquisition, the Company did not elect to redesignate these option contracts as cash flow hedges. In addition, the company also assumed undesignated forward contracts from Baxalta. The notional amount of these undesignated forward contracts totaled $249.3$659.3 million as of JuneSeptember 30, 2016.existing debt obligations or anticipated issuances of debt.on which interest is set at floating rates. The Company’s policy is to manage this risk to an acceptable level. The Company is principally exposed to interest rate risk on any borrowings under the Company’s various debt facilities and on part of the senior notes assumed in connection with the acquisition of Baxalta. Interest on each of these debt obligations is set at fixed and/or floating rates, to the extent utilized. Shire’s exposure under these facilities is to changes in U.S. dollar interest rates. For further details related to interest rates on the Company’s various debt facilities, please see Note 1314, Borrowings and capital lease obligations, to these Unaudited Consolidated Financial Statements.Senior Notessenior notes assumed in connection with immaterial net impactthe acquisition of Baxalta with the ineffective portion recorded in income. Any net interest payments made or received on the interest rate swap contracts are recognized as a component of interest expense in the Unaudited Consolidated Statements of Operations. For further details related to Baxalta’s Senior Notes, please see Note 13,14, Borrowings and capital lease obligations, to these Unaudited Consolidated Financial Statements. As of JuneSeptember 30, 2016, the fair value of these contracts was $55.6$43.7 million (2015: $nil) presented within other non-current assets. For the sixnine months ended JuneSeptember 30, 2016, the Company recognized $22.1$2.1 million (2015: $nil) of gain related to these contracts, which was recognized as a component of interest expense.sixnine months ended JuneSeptember 30, 2016, the Company entered into interest rate swap contracts with a total notional amount of $5.1 billion related to the November 2015 Facilities Agreement. The Company has not elected hedge accounting for these contracts. As of JuneSeptember 30, 2016, the fair value of these contracts was $4.6$1.1 million (2015: $nil), which is presented within other current liabilities. For the sixnine months ended JuneSeptember 30, 2016, the Company recognized $4.6$1.1 million (2015: $nil) loss related to these contracts, which was recognized as a component of interest expense.sixnine months ended JuneSeptember 30, 2016. There were no designated derivatives for the sixnine months ended JuneSeptember 30, 2015.JuneSeptember 30, 2016, the Company had in total 351270 swaps and forward foreign exchange contracts.
Gain (loss) recognized in OCI | Income Statement location | Gain (loss) reclassified from AOCI into income | ||||||||||||||||
Six months ended June 30, | 2016 | 2015 | 2016 | 2015 | ||||||||||||||
(in millions) | (in millions) | |||||||||||||||||
Designated Derivative Instruments | ||||||||||||||||||
Cash flow hedges | ||||||||||||||||||
Foreign exchange contracts | $ | (3.4 | ) | $ | - | Cost of sales | $ | - | $ | - |
Location of gain (loss) in Income Statement | Gain (loss) recognized in income | |||||||||
Six months ended June 30, | 2016 | 2015 | ||||||||
(in millions) | ||||||||||
Fair value hedges | ||||||||||
Interest rate contracts | Interest expense | $ | 22.1 | $ | - | |||||
Undesignated Derivative Instruments | ||||||||||
Foreign exchange contracts | Other income/(expense), net | (28.8 | ) | 21.3 | ||||||
Interest rate swap contracts | Interest expense | (4.6 | ) | - |
(in millions) | Gain (loss) recognized in OCI | Income Statement location | Gain (loss) reclassified from AOCI into income | ||||||||||||||
Nine months ended September 30, | 2016 | 2015 | 2016 | 2015 | |||||||||||||
Designated Derivative Instruments | |||||||||||||||||
Cash flow hedges | |||||||||||||||||
Foreign exchange contracts | $ | (0.1 | ) | $ | — | Cost of sales | $ | — | $ | — |
(in millions) | Location of gain (loss) in Income Statement | Gain (loss) recognized in income | |||||||||||
Nine months ended September 30, | 2016 | 2015 | |||||||||||
Fair value hedges | |||||||||||||
Interest rate contracts | Interest expense | $ | 2.1 | $ | — | ||||||||
Undesignated Derivative Instruments | |||||||||||||
Foreign exchange contracts | Other (expense)/income, net | (50.0 | ) | 12.0 | |||||||||
Interest rate swap contracts | Interest expense | (1.1 | ) | — |
Derivatives in asset positions | Derivatives in liability positions | |||||||||||
(in millions) | Balance Sheet location | Fair Value | Balance Sheet location | Fair Value | ||||||||
Designated Derivative Instruments | ||||||||||||
Foreign exchange contracts | Other current assets | $ | 1.8 | Accrued liabilities | $ | 9.3 | ||||||
Interest rate contracts | Other non-current assets | 55.6 | — | |||||||||
$ | 57.4 | $ | 9.3 | |||||||||
Undesignated Derivative Instruments | ||||||||||||
Foreign exchange forward contracts | Prepaid and other current assets | $ | 7.9 | Accrued liabilities | $ | 26.8 | ||||||
Interest rate swap contracts | Prepaid and other current assets | — | Accrued liabilities | 4.6 | ||||||||
$ | 65.3 | $ | 40.7 |
Derivatives in asset positions | Derivatives in liability positions | ||||||||||
(in millions) | Balance Sheet location | Fair Value | Balance Sheet location | Fair Value | |||||||
Designated Derivative Instruments | |||||||||||
Foreign exchange contracts | Prepaid expenses and other current assets | $ | 2.8 | Accounts payable and accrued expenses | $ | 6.1 | |||||
Interest rate contracts | Long term borrowings | 43.7 | — | ||||||||
$ | 46.5 | $ | 6.1 | ||||||||
Undesignated Derivative Instruments | |||||||||||
Foreign exchange forward contracts | Prepaid expenses and other current assets | $ | 4.1 | Accounts payable and accrued expenses | $ | 6.1 | |||||
Interest rate swap contracts | Prepaid expenses and other current assets | — | Accounts payable and accrued expenses | 1.1 | |||||||
$ | 50.6 | $ | 13.3 |
14. | Borrowings and Capital Lease Obligations |
June 30, | December 31, | |||||||
2016 | 2015 | |||||||
(in millions) | ||||||||
Short term borrowings: | ||||||||
Borrowings under the Revolving Credit Facilities Agreement | $ | 905.0 | $ | 750.0 | ||||
Borrowings under the November 2015 Facilities Agreement | 1,788.3 | - | ||||||
Borrowings under the January 2015 Facilities Agreement | - | 750.0 | ||||||
Other borrowings | 16.6 | 11.5 | ||||||
Capital lease obligations (current portion) | 5.3 | - | ||||||
2,715.2 | 1,511.5 | |||||||
Long term borrowings: | ||||||||
Senior notes | 5,114.0 | - | ||||||
Borrowings under the January 2016 Facilities Agreement | 12,341.6 | - | ||||||
Borrowings under the November 2015 Facilities Agreement | 3,792.1 | - | ||||||
Other borrowings | 64.4 | 69.9 | ||||||
Capital lease obligations (long term portion) | 343.6 | - | ||||||
$ | 24,370.9 | $ | 1,581.4 |
(in millions) | September 30, 2016 | December 31, 2015 | |||||
Short term borrowings: | |||||||
Borrowings under the Revolving Credit Facilities Agreement | $ | 920.0 | $ | 750.0 | |||
Borrowings under the November 2015 Facilities Agreement | 1,796.3 | — | |||||
Borrowings under the January 2015 Facilities Agreement | — | 750.0 | |||||
Other borrowings | 20.8 | 11.5 | |||||
$ | 2,737.1 | $ | 1,511.5 | ||||
Long term borrowings: | |||||||
Senior notes | $ | 12,037.0 | $ | — | |||
Baxalta notes | 5,104.4 | — | |||||
Borrowings under the November 2015 Facilities Agreement | 3,788.3 | — | |||||
Other borrowings | 59.2 | 69.9 | |||||
Capital lease obligations (long term portion) | 348.6 | — | |||||
$ | 24,074.6 | $ | 1,581.4 |
(in millions) | ||||
2016 (remaining six months) | $ | 1,010.0 | ||
2017 | 2,231.0 | |||
2018 | 15,574.8 | |||
2019 | 44.2 | |||
2020 | 1,946.7 | |||
2021 | 18.5 | |||
Thereafter | 3,621.3 | |||
Total obligations | 24,446.5 | |||
Fair value hedges, unamortized bond premium and deferred financing costs | (75.6 | ) | ||
Total debt and capital lease obligations | $ | 24,370.9 | ||
(in millions) | |||
2016 (remaining three months) | $ | 605.7 | |
2017 | 2,626.7 | ||
2018 | 3,184.1 | ||
2019 | 3,344.1 | ||
2020 | 1,960.1 | ||
2021 | 3,318.7 | ||
Thereafter | 9,110.7 | ||
Total obligations | 24,150.1 | ||
Fair value hedges, unamortized bond premium and deferred financing costs | (75.5 | ) | |
Total debt and capital lease obligations | $ | 24,074.6 |
Issuance
(in millions, except for percentage information) | Aggregate Amount | Coupon Rate | Effective interest rate in 2016 | Carrying amount at September 30, 2016 | |||||||||
Fixed-rate notes due 2019 | $ | 3,300.0 | 1.900 | % | 2.05 | % | 3,286.5 | ||||||
Fixed-rate notes due 2021 | 3,300.0 | 2.400 | % | 2.53 | % | 3,282.4 | |||||||
Fixed-rate notes due 2023 | 2,500.0 | 2.875 | % | 2.97 | % | 2,487.8 | |||||||
Fixed-rate notes due 2026 | 3,000.0 | 3.200 | % | 3.30 | % | 2,980.3 | |||||||
$ | 12,100.0 | $ | 12,037.0 |
(in millions, except for percentage information) | Aggregate Principal | Coupon Rate | Effective interest rate in 2016 | Carrying amount at September 30, 2016 | |||||||||
Variable-rate notes due 2018 | $ | 375.0 | LIBOR plus 0.78% | 1.65 | % | $ | 370.9 | ||||||
Fixed-rate notes due 2018 | 375.0 | 2.000 | % | 2.20 | % | 374.8 | |||||||
Fixed-rate notes due 2020 | 1,000.0 | 2.875 | % | 2.80 | % | 1,014.8 | |||||||
Fixed-rate notes due 2022 | 500.0 | 3.600 | % | 3.30 | % | 508.8 | |||||||
Fixed-rate notes due 2025 | 1,750.0 | 4.000 | % | 3.90 | % | 1,803.0 | |||||||
Fixed-rate notes due 2045 | 1,000.0 | 5.250 | % | 5.20 | % | 1,032.1 | |||||||
Total assumed Senior Notes | $ | 5,000.0 | $ | 5,104.4 |
(in millions, except for percentage information) | Aggregate Principal | Coupon Rate | Effective interest rate in 2016 | Carrying amount at June 30, 2016 | ||||||||||||
LIBOR plus | ||||||||||||||||
Variable-rate notes due 2018 | $ | 375.0 | 0.78 | % | 1.43 | % | $ | 370.3 | ||||||||
Fixed-rate notes due 2018 | 375.0 | 2.000 | % | 2.2 | % | 374.7 | ||||||||||
Fixed-rate notes due 2020 | 1,000.0 | 2.875 | % | 3.0 | % | 1,020.0 | ||||||||||
Fixed-rate notes due 2022 | 500.0 | 3.600 | % | 3.7 | % | 509.1 | ||||||||||
Fixed-rate notes due 2025 | 1,750.0 | 4.000 | % | 4.2 | % | 1,807.6 | ||||||||||
Fixed-rate notes due 2045 | 1,000.0 | 5.250 | % | 5.6 | % | 1,032.3 | ||||||||||
Total assumed Senior Notes | $ | 5,114.0 |
Baxalta Revolving Credit Facilities – cancelled on closing
The $1,200.0 million senior revolving credit facility and the €200.0 million Euro-denominated senior revolving credit facility available to Baxalta were cancelled by the Company upon the closing of the combination with Baxalta.
Revolving Credit Facilities Agreement
A.
NPS (including certain related costs). On September 28, 2015, the Company reduced the January 2015 Facilities Agreement by $100 million. In January 2016 and at various points thereafter, the Company canceled parts of the January 2015 Facilities Agreement. On February 22, 2016, the Company repaid the remaining balance of $100 million of the January 2015 Facilities Agreement in full.
Capital Lease Obligations
15. | Retirement and Other Benefit Programs |
U.S. Pension | International pension | OPEB | ||||||||||
(in millions) | ||||||||||||
Projected Benefit Obligation and Plan Assets Assumed | ||||||||||||
Projected benefit obligation | $ | 441.6 | $ | 503.8 | $ | 23.5 | ||||||
Plan assets | 218.0 | 140.5 | - | |||||||||
Funded status as of June 3, 2016 | $ | (223.6 | ) | $ | (363.3 | ) | $ | (23.5 | ) | |||
Amounts Recognized in the Consolidated Balance Sheet | ||||||||||||
Other current liabilities | $ | (0.2 | ) | $ | (3.1 | ) | $ | - | ||||
Other non-current liabilities | (223.4 | ) | (360.2 | ) | (23.5 | ) | ||||||
Net liability recognized as of June 3, 2016 | $ | (223.6 | ) | $ | (363.3 | ) | $ | (23.5 | ) |
(in millions) | U.S. pensions | International pensions | OPEB | ||||||||
Projected Benefit Obligation and Plan Assets Assumed | |||||||||||
Projected benefit obligation | $ | 441.6 | $ | 503.8 | $ | 23.5 | |||||
Plan assets | 218.0 | 140.5 | — | ||||||||
Funded status as of June 3, 2016 | $ | (223.6 | ) | $ | (363.3 | ) | $ | (23.5 | ) | ||
Amounts Recognized in the Consolidated Balance Sheet | |||||||||||
Other current liabilities | $ | (0.2 | ) | $ | (3.1 | ) | $ | — | |||
Other non-current liabilities | (223.4 | ) | (360.2 | ) | (23.5 | ) | |||||
Net liability recognized as of June 3, 2016 | $ | (223.6 | ) | $ | (363.3 | ) | $ | (23.5 | ) |
(in million) | June 3, 2016 | |||
U.S. | ||||
ABO | $ | 369.2 | ||
Fair value of plan assets | 218.0 | |||
International | ||||
ABO | 364.9 | |||
Fair value of plan assets | $ | 118.2 |
(in millions) | June 3, 2016 | ||
U.S. | |||
ABO | $ | 369.2 | |
Fair value of plan assets | 218.0 | ||
International | |||
ABO | 364.9 | ||
Fair value of plan assets | 118.2 |
(in millions) | U.S. Pension | International pension | OPEB | |||||||||
2016 (after June 3, 2016) | $ | 0.9 | $ | 7.3 | $ | - | ||||||
2017 | 3.6 | 14.7 | 0.2 | |||||||||
2018 | 5.4 | 14.6 | 0.3 | |||||||||
2019 | 7.3 | 16.2 | 0.4 | |||||||||
2020 | 9.3 | 16.7 | 0.5 | |||||||||
2021 through 2025 | 75.6 | 104.8 | 3.5 | |||||||||
Total expected benefit payments for next 10 years | $ | 102.1 | $ | 174.3 | $ | 4.9 |
(in millions) | U.S. pensions | International pensions | OPEB | ||||||||
2016 (after June 3, 2016) | $ | 0.9 | $ | 7.3 | $ | — | |||||
2017 | 3.6 | 14.7 | 0.2 | ||||||||
2018 | 5.4 | 14.6 | 0.3 | ||||||||
2019 | 7.3 | 16.2 | 0.4 | ||||||||
2020 | 9.3 | 16.7 | 0.5 | ||||||||
2021 through 2025 | 75.6 | 104.8 | 3.5 | ||||||||
Total expected benefit payments for next 10 years | $ | 102.1 | $ | 174.3 | $ | 4.9 |
Net Periodic Benefit Cost
The net periodic benefit cost presented below is from the June 3, 2016 assumption of the obligations to June 30, 2016.
3 and 6 Months Ended June 30, 2016 | ||||||||||||
(in millions) | U.S. Pension | International pension | OPEB | |||||||||
Net periodic benefit cost | ||||||||||||
Service cost | $ | 1.9 | $ | 2.6 | $ | 0.1 | ||||||
Interest cost | 1.6 | 0.4 | 0.1 | |||||||||
Expected return on plan assets | (1.3 | ) | (0.5 | ) | - | |||||||
Net periodic benefit cost | $ | 2.2 | $ | 2.5 | $ | 0.2 |
U.S. Pension | International pension | OPEB | ||||||||||
Discount rate | 4.1 | % | 1.0 | % | 4.2 | % | ||||||
Rate of compensation increase | 3.8 | % | 3.2 | % | n/a | |||||||
Annual rate of increase in the per-capita cost | n/a | n/a | 6.5 | % | ||||||||
Rate decreased to | n/a | n/a | 5.0 | % | ||||||||
by the year ended | n/a | n/a | 2022 |
U.S. pensions | International pensions | OPEB | ||||||
Discount rate | 4.1 | % | 1.0 | % | 4.2 | % | ||
Rate of compensation increase | 3.8 | % | 3.2 | % | n/a | |||
Annual rate of increase in the per-capita cost | n/a | n/a | 6.5 | % | ||||
Rate decreased to | n/a | n/a | 5.0 | % | ||||
by the year ended | n/a | n/a | 2022 |
U.S. pension plan assets | |||||||||||||||
(in millions) | Balance at June 3, 2016 | Level 1 | Level 2 | Level 3 | |||||||||||
Assets | |||||||||||||||
Fixed income | |||||||||||||||
Cash equivalents* | $ | 4.4 | $ | — | $ | — | $ | — | |||||||
Collective trust funds* | 42.7 | — | — | — | |||||||||||
Mutual fund* | 10.7 | — | — | — | |||||||||||
Equity | |||||||||||||||
Collective trust funds* | 96.5 | — | — | — | |||||||||||
Mutual fund* | 53.0 | 17.0 | — | — | |||||||||||
Hedge funds* | 10.7 | — | — | — | |||||||||||
Fair value of pension plan assets | $ | 218.0 | $ | 17.0 | $ | — | $ | — |
Basis of fair value measurement | ||||||||||||||||
Balance at June 3, 2016 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
(in millions) | ||||||||||||||||
Assets | ||||||||||||||||
Fixed income | ||||||||||||||||
Cash equivalents | $ | 4.4 | $ | - | $ | 4.4 | $ | - | ||||||||
Common/collective trust funds | 53.4 | - | 53.4 | - | ||||||||||||
Equity | ||||||||||||||||
Common/collective trust funds | 149.5 | - | 149.5 | - | ||||||||||||
Hedge funds | 10.7 | - | 10.7 | - | ||||||||||||
Fair value of pension plan assets | $ | 218.0 | $ | - | $ | 218.0 | $ | - |
The following tables summarize the bases used to measure the pension plan assets and liabilities that are carried at fair value on a recurring basis for the international funded plans.
Basis of fair value measurement | ||||||||||||||||
(in millions) | Balance at June 3, 2016 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||
Assets | ||||||||||||||||
Fixed income | ||||||||||||||||
Cash and cash equivalents | $ | 9.7 | $ | 9.7 | $ | - | $ | - | ||||||||
Government agency issues | 1.5 | 1.5 | - | - | ||||||||||||
Corporate bonds | 30.1 | 30.1 | - | - | ||||||||||||
Mutual funds | 40.5 | 40.5 | - | - | ||||||||||||
Equity | ||||||||||||||||
Common stock: | ||||||||||||||||
Large cap | 15.7 | 15.7 | - | - | ||||||||||||
Mid cap | 1.6 | 1.6 | - | - | ||||||||||||
Total common stock | 17.3 | 17.3 | - | - | ||||||||||||
Mutual funds | 21.5 | 21.5 | - | - | ||||||||||||
Real estate funds | 10.2 | 8.4 | 1.8 | - | ||||||||||||
Other holdings | 9.7 | 0.1 | 9.6 | - | ||||||||||||
Fair value of pension plan assets | $ | 140.5 | $ | 129.1 | $ | 11.4 | $ | - |
International pension plan assets | |||||||||||||||
(in millions) | Balance at June 3, 2016 | Level 1 | Level 2 | Level 3 | |||||||||||
Assets | |||||||||||||||
Fixed income | |||||||||||||||
Cash and cash equivalents | $ | 9.7 | $ | 9.7 | $ | — | $ | — | |||||||
Government agency issues | 1.5 | 1.5 | — | — | |||||||||||
Corporate bonds | 30.1 | 30.1 | — | — | |||||||||||
Mutual funds | 40.5 | 40.5 | — | — | |||||||||||
Equity | |||||||||||||||
Common stock: | |||||||||||||||
Large cap | 15.7 | 15.7 | — | — | |||||||||||
Mid cap | 1.6 | 1.6 | — | — | |||||||||||
Total common stock | 17.3 | 17.3 | — | — | |||||||||||
Mutual funds | 21.5 | 21.5 | — | — | |||||||||||
Real estate funds* | 10.2 | 8.4 | — | — | |||||||||||
Other holdings | 9.7 | 0.1 | 9.6 | — | |||||||||||
Fair value of pension plan assets | $ | 140.5 | $ | 129.1 | $ | 9.6 | $ | — |
Investment category | Valuation methodology |
Cash and cash equivalents | These largely consist of a short-term investment fund, U.S. dollars and foreign currency. The fair value of the short-term investment fund is based on the net asset value |
Government agency issues | Values are based on quoted prices in an active market |
Corporate bonds | Values are based on the valuation date in an active market |
Common stock | Values are based on the closing prices on the valuation date in an active market on national and international stock exchanges |
Mutual funds | Values are based on the net asset value of the units held in the respective fund which are obtained from national and international exchanges or as reported by the fund managers |
Values are based on the net asset value of the units held at year end | |
Real estate funds | The value of these assets are either determined by the net asset value of the units held in the respective fund which are obtained from national and international exchanges or based on the net asset value of the underlying assets of the fund provided by the fund manager |
Other holdings | The value of these assets vary by investment type and are primarily based on reputable pricing vendors that typically use pricing matrices or models |
June 3, 2016 through September 30, 2016 | |||||||||||
(in millions) | U.S. pensions | International pensions | OPEB | ||||||||
Net periodic benefit cost | |||||||||||
Service cost | $ | 7.4 | $ | 10.5 | $ | 0.5 | |||||
Interest cost | 6.4 | 1.8 | 0.3 | ||||||||
Expected return on plan assets | (5.1 | ) | (2.2 | ) | — | ||||||
Net periodic benefit cost | $ | 8.7 | $ | 10.1 | $ | 0.8 |
Three months ended September 30, 2016 | |||||||||||
(in millions) | U.S. pensions | International pensions | OPEB | ||||||||
Net periodic benefit cost | |||||||||||
Service cost | $ | 5.5 | $ | 7.9 | $ | 0.4 | |||||
Interest cost | 4.8 | 1.4 | 0.2 | ||||||||
Expected return on plan assets | (3.8 | ) | (1.7 | ) | — | ||||||
Net periodic benefit cost | $ | 6.5 | $ | 7.6 | $ | 0.6 |
any discretionary contributions, which could be significant in any period.
United States | International | ||||||||||||||||
(in millions, except percentages) | Qualified plans | Nonqualified plans | Funded plans | Unfunded plans | Total | ||||||||||||
Fair value of plan assets | $ | 218.0 | n/a | $ | 140.5 | n/a | $ | 358.5 | |||||||||
PBO | 410.9 | 30.7 | 324.0 | 179.8 | 945.4 | ||||||||||||
Funded status percentage | 53 | % | n/a | 43 | % | n/a | 38 | % |
16. | Accumulated Other ComprehensiveLoss |
(in millions) | Foreign currency translation adjustment | Unrealized holding loss on available-for-sale securities | Hedging activities | Accumulated other comprehensive loss | ||||||||||||
As of January 1, 2016 | $ | (182.1 | ) | $ | (1.7 | ) | $ | - | $ | (183.8 | ) | |||||
Net current period other comprehensive loss | (195.5 | ) | (4.7 | ) | (1.8 | ) | (202.0 | ) | ||||||||
As of June 30, 2016 | $ | (377.6 | ) | $ | (6.4 | ) | $ | (1.8 | ) | $ | (385.8 | ) | ||||
(in millions) | Foreign currency translation adjustment | Unrealized holding (loss)/gain on available-for-sale securities | Hedging activities | Accumulated other comprehensive loss | ||||||||||||
As of January 1, 2015 | $ | (25.7 | ) | $ | (5.8 | ) | $ | - | $ | (31.5 | ) | |||||
Net current period other comprehensive (loss)/income | (83.3 | ) | 3.3 | - | (80.0 | ) | ||||||||||
As of June 30, 2015 | $ | (109.0 | ) | $ | (2.5 | ) | - | $ | (111.5 | ) | ||||||
(in millions) | Foreign currency translation adjustment | Unrealized holding (loss)/gain on available-for-sale securities | Hedging activities | Accumulated other comprehensive loss | |||||||||||
As of January 1, 2016 | $ | (182.1 | ) | $ | (1.7 | ) | $ | — | $ | (183.8 | ) | ||||
Net current period other comprehensive income | 38.8 | 10.4 | 0.4 | 49.6 | |||||||||||
As of September 30, 2016 | $ | (143.3 | ) | $ | 8.7 | $ | 0.4 | $ | (134.2 | ) |
(in millions) | Foreign currency translation adjustment | Unrealized holding (loss)/gain on available-for-sale securities | Hedging activities | Accumulated other comprehensive loss | |||||||||||
As of January 1, 2015 | $ | (25.7 | ) | $ | (5.8 | ) | $ | — | $ | (31.5 | ) | ||||
Net current period other comprehensive (loss)/income | (124.9 | ) | 1.3 | — | (123.6 | ) | |||||||||
As of September 30, 2015 | $ | (150.6 | ) | $ | (4.5 | ) | — | $ | (155.1 | ) |
17. | Earnings per Share |
3 Months Ended June 30, | 6 Months Ended June 30, | |||||||||||||||
(in millions) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Income from continuing operations, net of taxes | $ | 86.6 | $ | 164.1 | $ | 496.1 | $ | 577.0 | ||||||||
Loss from discontinued operations | (248.7 | ) | (4.5 | ) | (239.2 | ) | (7.0 | ) | ||||||||
Numerator for basic and diluted earnings per share | $ | (162.1 | ) | $ | 159.6 | $ | 256.9 | $ | 570.0 | |||||||
Weighted average number of shares: | ||||||||||||||||
(in millions) | ||||||||||||||||
Basic | 682.8 | 590.5 | 637.3 | 589.8 | ||||||||||||
Effect of dilutive shares: | ||||||||||||||||
Share-based awards to employees | - | 2.7 | 2.8 | 3.2 | ||||||||||||
Diluted | 682.8 | 593.2 | 640.1 | 593.0 | ||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(in millions) | 2016 | 2015 | 2016 | 2015 | |||||||||||
(Loss)/Income from continuing operations, net of taxes | $ | (368.5 | ) | $ | 477.1 | $ | 127.6 | $ | 1,054.1 | ||||||
Loss from discontinued operations | (18.3 | ) | (24.3 | ) | (257.5 | ) | (31.3 | ) | |||||||
Numerator for basic and diluted (loss)/earnings per share | $ | (386.8 | ) | $ | 452.8 | $ | (129.9 | ) | $ | 1,022.8 | |||||
Weighted average number of shares: | |||||||||||||||
Basic | 900.2 | 590.9 | 725.5 | 590.2 | |||||||||||
Effect of dilutive shares: | |||||||||||||||
Share-based awards to employees | — | 2.5 | — | 3.0 | |||||||||||
Diluted | 900.2 | 593.4 | 725.5 | 593.2 |
3 Months Ended June 30, | 6 Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
No. of shares | No. of shares | No. of shares | No. of shares | |||||||||||||
(in millions) | ||||||||||||||||
Share-based awards to employees | 8.3 | 1.0 | 4.4 | 3.2 | ||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
(in millions) | 2016 No. of shares | 2015 No. of shares | 2016 No. of shares | 2015 No. of shares | |||||||
Share-based awards to employees | 14.6 | 3.9 | 9.7 | 3.3 |
18. | Taxation |
The effective tax rate for the three and nine months ended JuneSeptember 30, 2015 was negative primarily due to the reduction in deferredrelease of certain valuation allowances, the effect of the finalization of various tax liabilities in relation to the impairment of IPR&D intangible assets,returns and the re-measurement of uncertain tax positions relating to ongoing tax audits and the release of certain valuation allowances all recognized during the secondthird quarter of 2015.
19. | Segment Reporting |
6 Months Ended June 30, | ||||||||
(in millions) | 2016 | 2015 | ||||||
Product sales: | ||||||||
CINRYZE | $ | 337.2 | $ | 286.9 | ||||
ELAPRASE | 277.6 | 271.5 | ||||||
FIRAZYR | 265.0 | 196.6 | ||||||
REPLAGAL | 221.6 | 214.4 | ||||||
VPRIV | 171.6 | 171.1 | ||||||
KALBITOR | 28.1 | - | ||||||
Genetic Diseases total | 1,301.1 | 1,140.5 | ||||||
VYVANSE | 1,026.9 | 841.6 | ||||||
ADDERALL XR | 200.6 | 181.7 | ||||||
Other Neuroscience | 57.8 | 52.4 | ||||||
Neuroscience total | 1,285.3 | 1,075.7 | ||||||
LIALDA/MEZAVANT | 361.7 | 306.4 | ||||||
PENTASA | 136.9 | 145.0 | ||||||
GATTEX/REVESTIVE | 96.2 | 52.2 | ||||||
NATPARA | 35.5 | 5.9 | ||||||
Other Internal Medicine | 173.3 | 173.7 | ||||||
Internal Medicine total | 803.6 | 683.2 | ||||||
HEMOPHILIA | 275.6 | - | ||||||
INHIBITOR THERAPIES | 74.0 | - | ||||||
Hematology total | 349.6 | - | ||||||
IMMUNOGLOBULIN THERAPIES | 138.2 | - | ||||||
BIO THERAPEUTICS | 51.3 | - | ||||||
Immunology total | 189.5 | - | ||||||
Oncology total | 20.3 | - | ||||||
Total product sales | 3,949.4 | 2,899.4 | ||||||
Royalties and Other Revenues: | ||||||||
SENSIPAR Royalties | 73.5 | 45.2 | ||||||
3TC and ZEFFIX Royalties | 27.1 | 18.0 | ||||||
FOSRENOL Royalties | 20.6 | 19.2 | ||||||
ADDERALL XR Royalties | 11.0 | 15.1 | ||||||
Other Royalties and Revenues | 56.8 | 49.1 | ||||||
Total Royalties and Other Revenues | 189.0 | 146.6 | ||||||
Total Revenues | $ | 4,138.4 | $ | 3,046.0 |
Nine Months Ended September 30, | |||||||
(in millions) | 2016 | 2015 | |||||
Product sales: | |||||||
HEMOPHILIA | $ | 978.0 | $ | — | |||
INHIBITOR THERAPIES | 255.7 | — | |||||
Hematology total | 1,233.7 | — | |||||
CINRYZE | 502.6 | 474.4 | |||||
ELAPRASE | 424.3 | 405.5 | |||||
FIRAZYR | 411.3 | 319.8 | |||||
REPLAGAL | 340.5 | 325.5 | |||||
VPRIV | 259.3 | 256.2 | |||||
KALBITOR | 39.2 | — | |||||
Genetic Diseases total | 1,977.2 | 1,781.4 | |||||
VYVANSE | 1,539.5 | 1,268.9 | |||||
ADDERALL XR | 281.1 | 259.7 | |||||
Other Neuroscience | 81.2 | 81.9 | |||||
Neuroscience total | 1,901.8 | 1,610.5 | |||||
IMMUNOGLOBULIN THERAPIES | 610.7 | — | |||||
BIO THERAPEUTICS | 185.3 | — | |||||
Immunology total | 796.0 | — | |||||
LIALDA/MEZAVANT | 570.3 | 483.0 | |||||
PENTASA | 222.3 | 232.7 | |||||
GATTEX/REVESTIVE | 154.3 | 95.2 | |||||
NATPARA | 58.8 | 12.8 | |||||
Other Internal Medicine | 260.6 | 260.6 | |||||
Internal Medicine total | 1,266.3 | 1,084.3 | |||||
Oncology total | 75.7 | — | |||||
Opthalmology Total | 14.1 | — | |||||
Total product sales | 7,264.8 | 4,476.2 | |||||
Royalties and Other Revenues: | |||||||
SENSIPAR Royalties | 112.2 | 80.0 | |||||
3TC and ZEFFIX Royalties | 43.3 | 29.9 | |||||
FOSRENOL Royalties | 34.3 | 32.4 | |||||
ADDERALL XR Royalties | 15.7 | 22.2 | |||||
Other Royalties and Revenues | 120.2 | 60.3 | |||||
Total Royalties and Other Revenues | 325.7 | 224.8 | |||||
Total Revenues | $ | 7,590.5 | $ | 4,701.0 |
20. | Commitments and Contingencies |
JuneSeptember 30, 2016 are presented below: Operating leases (in millions) 2016 (remaining six months) 1 $ 66.3 2017 1 102.3 2018 1 83.3 2019 1 71.3 2020 1 70.5 2021 67.7 Thereafter 1 299.2 111 $ 760.6 (in millions) 2016 (remaining three months) $ 42.6 2017 118.9 2018 94.8 2019 84.5 2020 80.1 2021 74.6 Thereafter 333.7 $ 829.2 sixnine months ended JuneSeptember 30, 2016, lease and rental expense totaled $22.8$32.7 million and $30.3$63.0 million, respectively (2015: $10.1$6.3 million and $24.3$30.6 million, respectively), which is predominatelypredominantly included in cost of sales and SG&A expenses in the Company’s Unaudited Consolidated Statements of Operations.JuneSeptember 30, 2016, the Company had irrevocable standby letters of credit and guarantees with various banks and insurance companiestotaling $145.0companies totaling $130.0 million (being the contractual amounts), providing security for the Company’s performance of various obligations. These obligations are primarily in respect of the recoverability of insurance claims, lease obligations and supply commitments.25,24, Guarantor financial information, to these Unaudited Consolidated Financial Statements.JuneSeptember 30, 2016, the Company had committed to pay approximately $1,008$1,202 million (December 31, 2015: $490 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.JuneSeptember 30, 2016, the Company had committed to pay approximately $447$608 million (December 31, 2015: $325 million) in respect of contract manufacturing. The Company expects to pay $213 million of these commitments in 2016.JuneSeptember 30, 2016, the Company had committed to pay approximately $2,153$1,993 million (December 31, 2015: $485 million) for future purchases of goods and services, predominantly relating to active pharmaceutical ingredients sourcing. The Company expects to pay $865 million of these commitments in 2016.
20.Legal and other proceedings
21. | Legal and other proceedings |
On April 14, 2016, Shire prevailed in upholding its European patent for ELVANSE. Shire initially prevailed in an opposition to its patent lodged by Johnson Matthey plc, Generics [UK] Limited (trading as Mylan) and Hexal AG and on April 14, 2016 Shire prevailed in the appeal. The decision by the appeals board of the European Patent Office is final and cannot be further appealed.
infringe the asserted claims. Shire has appealed the ruling to the CAFC. CAFC and oral argument took place on October 5, 2016. view of the challenges put forward in the IPR.and a decision isthe court issued its ruling finding that the proposed generic product would not expected before September 2016.Inc.—FloridaInc.-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 U.S. District Court for the Southern District of Florida against Watson Laboratories Inc.—FloridaInc.-Florida and Watson Pharmaceuticals, Inc., Watson Pharma, Inc. and Watson Laboratories, Inc. (collectively, “Watson”) 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 certiorari 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 and remanded the case to the U.S. District Court for the Southern District of Florida. A trial was held on January 25-27, 2016. A ruling was issued on March 28, 2016 upholding the validity of the patent and finding that Watson’s proposed ANDA product infringes the patent-in-suit. Watson appealed the ruling to the CAFC.is scheduled to taketook place starting onfrom September 6,26, 2016 through September 30, 2016.August 22,November 10, 2016.is expectedwas issued on October 5, 2016 upholding the validity of the patent in October 2016.As part ofFollowing those discussions, during the quarter, Shire has reached an agreement on a proposal for a civil settlement in the amount of $350$350.0 million plus interest, subject to negotiating a final settlement agreement and obtaining final approvals. As of June 30, 2016, anAn accrual has been recorded related to the settlement. Assuming the agreement is finalized, it will resolve the civil investigations conducted by the Department of Justice, including multiple U.S. Attorney’s Offices and relevant federal and state agencies.
The tentative settlement proposal would settle the federal government’s claims under the federal False Claims Act and the DERMAGRAFT Medicaid-related claims for states that opt into the settlement. Some states with DERMAGRAFT Medicaid-related claims might elect to opt out of any final settlement, and those states’ claims would remain unresolved.
22. | Share-based compensation plans |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(in millions) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Cost of sales | $ | 4.5 | $ | 1.9 | $ | 7.6 | $ | 4.7 | ||||||||
Research and development | 13.6 | 9.1 | 25.2 | 17.6 | ||||||||||||
Selling, general and administrative | 14.4 | 10.9 | 23.6 | 13.3 | ||||||||||||
Integration and acquisition costs | 144.0 | - | 138.4 | - | ||||||||||||
Reorganization costs | - | 7.0 | - | 8.7 | ||||||||||||
Total | 176.5 | 28.9 | 194.8 | 44.3 | ||||||||||||
Less tax | (41.5 | ) | (7.9 | ) | (46.3 | ) | (12.0 | ) | ||||||||
$ | 135.0 | $ | 21.0 | $ | 148.5 | $ | 32.3 | |||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(in millions) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Cost of sales | $ | 7.9 | $ | 6.0 | $ | 15.5 | $ | 6.0 | |||||||
Research and development | 14.4 | 9.4 | 33.4 | 21.0 | |||||||||||
Selling, general and administrative | 24.9 | 4.6 | 49.1 | 28.5 | |||||||||||
Integration and acquisition costs | 26.7 | — | 170.7 | — | |||||||||||
Reorganization costs | — | 6.7 | — | 15.3 | |||||||||||
Total | 73.9 | 26.7 | 268.7 | 70.8 | |||||||||||
Less tax | (26.9 | ) | (7.5 | ) | (73.2 | ) | (19.5 | ) | |||||||
$ | 47.0 | $ | 19.2 | $ | 195.5 | $ | 51.3 |
(options and aggregate intrinsic values in thousands) | Options* | Weighted-average exercise price | Weighted-average contractual term (in years) | Aggregate intrinsic value | ||||||||||||
Issued and outstanding | 13,290 | $ | 43.12 | 7.69 | $ | 242,467 | ||||||||||
Vested and exercisable | 5,691 | $ | 40.72 | 6.12 | $ | 117,453 | ||||||||||
*Number of awards are stated in terms of ordinary share equivalents | ||||||||||||||||
(number of RSUs in thousands) | RSUs* | Weighted average grant date fair value** | ||||||||||||||
Issued and Outstanding | 3,285 | $ | 49.55 | |||||||||||||
*Number of awards are stated in terms of ordinary share equivalents | ||||||||||||||||
**Reflects the pro rata portion representing future compensation as of June 3, 2016
|
(options and aggregate intrinsic values in thousands) | Options* | Weighted-average exercise price | Weighted-average contractual term (in years) | Aggregate intrinsic value | ||||||||
Issued and outstanding | 13,290 | $ | 43.12 | 7.69 | $ | 242,467 | ||||||
Vested and exercisable | 5,691 | $ | 40.72 | 6.12 | $ | 117,453 | ||||||
*Number of awards are stated in terms of ordinary share equivalents |
(number of RSUs in thousands) | RSUs* | Weighted average grant date fair value** | ||||
Issued and Outstanding | 3,285 | $ | 49.55 | |||
*Number of awards are stated in terms of ordinary share equivalents | ||||||
**Reflects the pro rata portion representing future compensation as of June 3, 2016 |
As of June 3, 2016 | ||||
Risk-free interest rate | 1.20 | % | ||
Expected dividend yield | 0.35 | % | ||
Expected life | 3.9 years | |||
Volatility | 29.1 | % | ||
Fair value per Option* | $ | 79.31 | ||
*Pro-rata portion of the fair value recognized as expense related to post combination service period |
As of June 3, 2016 | |||
Risk-free interest rate | 1.20 | % | |
Expected dividend yield | 0.35 | % | |
Expected life | 3.9 years | ||
Volatility | 29.1 | % | |
Fair value per Option* | $ | 79.31 | |
*Pro rata portion of the fair value recognized as expense related to post combination service period |
ArmaGen, Inc. (“ArmaGen”) is a related party as the Company owns 21% of ArmaGen common stock and the parties have a worldwide licensing and collaboration agreement to develop and commercialize AGT-182. For the three and six months ended June 30, 2016, Shire recorded R&D costs arising from the licensing and collaboration arrangement of $1.2 million and $1.7 million, respectively (2015: $5.5 million and $5.9 million, respectively), of which $0.3 million was accrued and unpaid as of June 30, 2016 (2015: $5.4 million).
23. | Agreements and Transactions with Baxter |
On June 14, 2016, Shire announced it agreed to license global rights, subject to regulatory approvals, to all indications for SHP647 (formerly PF-00547659) from Pfizer Inc. SHP647 is an investigational biologic being evaluated for the treatment of moderate-to-severe inflammatory bowel disease. Regulatory approval was received and the transaction closed on July 1, 2016. Under the terms of the agreement, Pfizer received an upfront payment of $90 million and is eligible to receive milestone payments based on clinical, regulatory and commercial milestones and royalties based on net sales if the product is approved.
Guarantor Financial Information |
The following financial information presents the related Unaudited Condensed Consolidating Statements of Operations for the three and six months ended June 30, 2016 and 2015, the Unaudited Condensed Consolidating Statements of Comprehensive Income/(Loss) for the three and six months ended June 30, 2016 and 2015, the Unaudited Condensed Consolidating Balance Sheets as of June 30, 2016 and December 31, 2015, and the Unaudited Condensed Consolidating Statements of Cash Flows for the six months ended June 30, 2016 and 2015. Condensedcondensed consolidating financial information for periods subsequent to June 3, 2016, the Parent Guarantordate of the Baxalta acquisition.
Condensed Consolidating Balance Sheet | ||||||||||||||||||||
(As of June 30, 2016) | Shire plc (Parent Guarantor) | Baxalta Inc. (Issuer) | Non-Guarantor subsidiaries | Eliminations | Consolidated | |||||||||||||||
(in millions) | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | - | $ | 53.4 | $ | 640.0 | $ | - | $ | 693.4 | ||||||||||
Restricted cash | - | - | 20.0 | - | 20.0 | |||||||||||||||
Accounts receivable, net | - | - | 2,432.0 | (19.6 | ) | 2,412.4 | ||||||||||||||
Inventories | - | - | 5,798.7 | - | 5,798.7 | |||||||||||||||
Prepaid expenses and other current assets | 1.8 | 7.8 | 724.0 | - | 733.6 | |||||||||||||||
Intercompany receivables | - | 631.9 | 5,286.9 | (5,918.8 | ) | - | ||||||||||||||
Total current assets | 1.8 | 693.1 | 14,901.6 | (5,938.4 | ) | 9,658.1 | ||||||||||||||
Non-current assets: | ||||||||||||||||||||
Investments | 36,404.6 | 36,234.8 | 12,545.5 | (85,010.9 | ) | 174.0 | ||||||||||||||
Property, plant and equipment, net | - | 18.5 | 6,577.8 | - | 6,596.3 | |||||||||||||||
Goodwill | - | - | 12,962.4 | - | 12,962.4 | |||||||||||||||
Intangible assets, net | - | - | 40,890.3 | - | 40,890.3 | |||||||||||||||
Other non-current assets | 4.6 | 368.4 | 275.4 | (209.0 | ) | 439.4 | ||||||||||||||
Total assets | $ | 36,411.0 | $ | 37,314.8 | $ | 88,153.0 | $ | (91,158.3 | ) | $ | 70,720.5 | |||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable and accrued expenses | $ | 66.0 | $ | 131.5 | $ | 3,550.5 | $ | (19.9 | ) | $ | 3,728.1 | |||||||||
Short term borrowings | 905.0 | - | 1,810.2 | - | 2,715.2 | |||||||||||||||
Intercompany payables | 5,270.5 | 16.1 | 631.9 | (5,918.5 | ) | - | ||||||||||||||
Other current liabilities | (0.1 | ) | 28.7 | 382.9 | - | 411.5 | ||||||||||||||
Total current liabilities | 6,241.4 | 176.3 | 6,375.5 | (5,938.4 | ) | 6,854.8 | ||||||||||||||
Non-current liabilities: | ||||||||||||||||||||
Long term borrowings | - | 5,114.7 | 16,197.4 | - | 21,312.1 | |||||||||||||||
Deferred tax liability | - | - | 10,252.8 | (199.0 | ) | 10,053.8 | ||||||||||||||
Other non-current liabilities | 406.6 | 79.5 | 2,260.7 | (10.0 | ) | 2,736.8 | ||||||||||||||
Total liabilities | 6,648.0 | 5,370.5 | 35,086.4 | (6,147.4 | ) | 40,957.5 | ||||||||||||||
Total equity | 29,763.0 | 31,944.3 | 53,066.6 | (85,010.9 | ) | 29,763.0 | ||||||||||||||
Total liabilities and equity | $ | 36,411.0 | $ | 37,314.8 | $ | 88,153.0 | $ | (91,158.3 | ) | $ | 70,720.5 | |||||||||
54
Condensed Consolidating Balance Sheet | ||||||||||||||||||||
(As of December 31, 2015) | Shire plc (Parent Guarantor) | Baxalta Inc. (Issuer) | Non-Guarantor subsidiaries | Eliminations | Consolidated | |||||||||||||||
(in millions) | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | - | $ | - | $ | 135.5 | $ | - | $ | 135.5 | ||||||||||
Restricted cash | - | - | 86.0 | - | 86.0 | |||||||||||||||
Accounts receivable, net | - | - | 1,201.2 | - | 1,201.2 | |||||||||||||||
Inventories | - | - | 635.4 | - | 635.4 | |||||||||||||||
Prepaid expenses and other current assets | (6.5 | ) | - | 203.9 | - | 197.4 | ||||||||||||||
Intercompany receivables | - | - | 3,145.3 | (3,145.3 | ) | - | ||||||||||||||
Total current assets | (6.5 | ) | - | 5,407.3 | (3,145.3 | ) | 2,255.5 | |||||||||||||
Non-current assets: | ||||||||||||||||||||
Investments | 14,477.2 | - | 50.8 | (14,477.2 | ) | 50.8 | ||||||||||||||
Property, plant and equipment, net | - | - | 828.1 | - | 828.1 | |||||||||||||||
Goodwill | - | - | 4,147.8 | - | 4,147.8 | |||||||||||||||
Intangible assets, net | - | - | 9,173.3 | - | 9,173.3 | |||||||||||||||
Other non-current assets | 13.7 | - | 140.6 | - | 154.3 | |||||||||||||||
Total assets | $ | 14,484.4 | $ | - | $ | 19,747.9 | $ | (17,622.5 | ) | $ | 16,609.8 | |||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable and accrued expenses | $ | 10.0 | $ | - | $ | 2,040.6 | $ | - | $ | 2,050.6 | ||||||||||
Short term borrowings | 1,500.0 | - | 11.5 | - | 1,511.5 | |||||||||||||||
Intercompany payables | 3,145.3 | - | - | (3,145.3 | ) | - | ||||||||||||||
Other current liabilities | - | - | 144.0 | - | 144.0 | |||||||||||||||
Total current liabilities | 4,655.3 | - | 2,196.1 | (3,145.3 | ) | 3,706.1 | ||||||||||||||
Non-current liabilities: | ||||||||||||||||||||
Long term borrowings | - | - | 69.9 | - | 69.9 | |||||||||||||||
Deferred tax liability | - | - | 2,205.9 | - | 2,205.9 | |||||||||||||||
Other non-current liabilities | - | - | 798.8 | - | 798.8 | |||||||||||||||
Total liabilities | 4,655.3 | - | 5,270.7 | (3,145.3 | ) | 6,780.7 | ||||||||||||||
Total equity | 9,829.1 | - | 14,477.2 | (14,477.2 | ) | 9,829.1 | ||||||||||||||
Total liabilities and equity | $ | 14,484.4 | $ | - | $ | 19,747.9 | $ | (17,622.5 | ) | $ | 16,609.8 | |||||||||
55
Condensed Consolidating Statements of Operations | ||||||||||||||||||||
(for the 3 months ended June 30, 2016) | Shire plc (Parent Guarantor) | Baxalta Inc. (Issuer) | Non-Guarantor subsidiaries | Eliminations | Consolidated | |||||||||||||||
(in millions) | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Product sales | $ | - | $ | - | $ | 2,322.1 | $ | - | $ | 2,322.1 | ||||||||||
Royalties & other revenues | - | - | 107.0 | - | 107.0 | |||||||||||||||
Total revenues | - | - | 2,429.1 | - | 2,429.1 | |||||||||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of sales | - | 5.6 | 772.5 | - | 778.1 | |||||||||||||||
Research and development | - | 1.0 | 293.8 | - | 294.8 | |||||||||||||||
Selling, general and administrative | 23.4 | 97.2 | 559.3 | (4.6 | ) | 675.3 | ||||||||||||||
Integration and acquisition costs | - | 114.9 | 248.1 | - | 363.0 | |||||||||||||||
Amortization of acquired intangible assets | - | - | 213.0 | - | 213.0 | |||||||||||||||
Other operating expenses | - | - | 8.7 | - | 8.7 | |||||||||||||||
Total operating expenses | 23.4 | 218.7 | 2,095.4 | (4.6 | ) | 2,332.9 | ||||||||||||||
Operating income (loss) from continuing operations | (23.4 | ) | (218.7 | ) | 333.7 | 4.6 | 96.2 | |||||||||||||
Interest income/(expense), net | (22.6 | ) | (5.7 | ) | (57.3 | ) | - | (85.6 | ) | |||||||||||
Other income/(expense), net | 1.2 | 7.7 | (2.9 | ) | - | 6.0 | ||||||||||||||
Total other income/(expense), net | (21.4 | ) | 2.0 | (60.2 | ) | - | (79.6 | ) | ||||||||||||
Income/(loss) from continuing operations before income taxes and equity in (losses)/earnings of equity method investees | (44.8 | ) | (216.7 | ) | 273.5 | 4.6 | 16.6 | |||||||||||||
Income tax benefit | 0.9 | 58.8 | 11.2 | - | 70.9 | |||||||||||||||
Equity in income/(losses) of equity method investees, net of taxes | (118.2 | ) | (131.5 | ) | (0.9 | ) | 249.7 | (0.9 | ) | |||||||||||
Income/(loss) from continuing operations, net of taxes | (162.1 | ) | (289.4 | ) | 283.8 | 254.3 | 86.6 | |||||||||||||
Loss from discontinued operations, net of taxes1 | - | - | (248.7 | ) | - | (248.7 | ) | |||||||||||||
Net income/(loss) | (162.1 | ) | (289.4 | ) | 35.1 | 254.3 | (162.1 | ) | ||||||||||||
Comprehensive income/(loss) | $ | (388.5 | ) | $ | (291.2 | ) | $ | (189.5 | ) | $ | 480.7 | $ | (388.5 | ) | ||||||
56
Condensed Consolidating Statements of Operations | ||||||||||||||||||||
(for the 6 months ended June 30, 2016) | Shire plc (Parent Guarantor) | Baxalta Inc. (Issuer) | Non-Guarantor subsidiaries | Eliminations | Consolidated | |||||||||||||||
(in millions) | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Product sales | $ | - | $ | - | $ | 3,949.4 | $ | - | $ | 3,949.4 | ||||||||||
Royalties & other revenues | - | - | 189.0 | - | 189.0 | |||||||||||||||
Total revenues | - | - | 4,138.4 | - | 4,138.4 | |||||||||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of product sales | - | 5.6 | 1,021.1 | - | 1,026.7 | |||||||||||||||
Research and development | - | 1.0 | 510.9 | - | 511.9 | |||||||||||||||
Selling, general and administrative | 35.8 | 97.2 | 1,017.2 | - | 1,150.2 | |||||||||||||||
Integration and acquisition costs | - | 114.9 | 339.2 | - | 454.1 | |||||||||||||||
Amortization of acquired intangible assets | - | - | 347.6 | - | 347.6 | |||||||||||||||
Other operating expenses | - | - | 7.8 | - | 7.8 | |||||||||||||||
Total operating expenses | 35.8 | 218.7 | 3,243.8 | - | 3,498.3 | |||||||||||||||
Operating income (loss) from continuing operations | (35.8 | ) | (218.7 | ) | 894.6 | - | 640.1 | |||||||||||||
Interest income/(expense), net | (44.5 | ) | (5.7 | ) | (79.1 | ) | - | (129.3 | ) | |||||||||||
Other (expense)/income, net | 0.9 | 7.7 | (11.1 | ) | - | (2.5 | ) | |||||||||||||
Total other income/(expense), net | (43.6 | ) | 2.0 | (90.2 | ) | - | (131.8 | ) | ||||||||||||
Income/(loss) from continuing operations before income taxes and equity in (losses)/earnings of equity method investees | (79.4 | ) | (216.7 | ) | 804.4 | - | 508.3 | |||||||||||||
Income tax benefit/(charge) | 1.9 | 58.8 | (71.9 | ) | - | (11.2 | ) | |||||||||||||
Equity in income/(losses) of equity method investees, net of taxes | 334.4 | (131.5 | ) | (1.0 | ) | (202.9 | ) | (1.0 | ) | |||||||||||
Income/(loss) from continuing operations, net of taxes | 256.9 | (289.4 | ) | 731.5 | (202.9 | ) | 496.1 | |||||||||||||
Loss from discontinued operations, net of taxes1 | - | - | (239.2 | ) | - | (239.2 | ) | |||||||||||||
Net income/(loss) | 256.9 | (289.4 | ) | 492.3 | (202.9 | ) | 256.9 | |||||||||||||
Comprehensive (loss)/income | $ | 54.9 | $ | (291.2 | ) | $ | 292.1 | $ | (0.9 | ) | $ | 54.9 | ||||||||
57
Condensed Consolidating Statements of Operations | ||||||||||||||||||||
(for the 3 months ended June 30, 2015) | Shire plc (Parent Guarantor) | Baxalta Inc. (Issuer) | Non-Guarantor subsidiaries | Eliminations | Consolidated | |||||||||||||||
(in millions) | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Product sales | $ | - | $ | - | $ | 1,476.2 | $ | - | $ | 1,476.2 | ||||||||||
Royalties & other revenues | - | - | 81.4 | - | 81.4 | |||||||||||||||
Total revenues | - | - | 1,557.6 | - | 1,557.6 | |||||||||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of product sales | - | - | 228.0 | - | 228.0 | |||||||||||||||
Research and development | - | - | 775.9 | - | 775.9 | |||||||||||||||
Selling, general and administrative | 7.4 | - | 488.2 | 0.4 | 496.0 | |||||||||||||||
Integration and acquisition costs | - | - | (212.4 | ) | - | (212.4 | ) | |||||||||||||
Amortization of acquired intangible assets | - | - | 131.3 | - | 131.3 | |||||||||||||||
Other operating expenses | - | - | 6.2 | - | 6.2 | |||||||||||||||
Total operating expenses | 7.4 | - | 1,417.2 | 0.4 | 1,425.0 | |||||||||||||||
Operating income (loss) from continuing operations | (7.4 | ) | - | 140.4 | (0.4 | ) | 132.6 | |||||||||||||
Interest income/(expense), net | (16.4 | ) | - | 5.7 | - | (10.7 | ) | |||||||||||||
Other expense, net | (0.2 | ) | - | (1.8 | ) | - | (2.0 | ) | ||||||||||||
Total other income/(expense), net | (16.6 | ) | - | 3.9 | - | (12.7 | ) | |||||||||||||
Income/(loss) from continuing operations before income taxes and equity in (losses)/earnings of equity method investees | (24.0 | ) | - | 144.3 | (0.4 | ) | 119.9 | |||||||||||||
Income tax benefit/(charge) | 0.8 | - | 43.3 | - | 44.1 | |||||||||||||||
Equity in income/(losses) of equity method investees, net of taxes | 182.8 | - | 0.1 | (182.8 | ) | 0.1 | ||||||||||||||
Income/(loss) from continuing operations, net of taxes | 159.6 | - | 187.7 | (183.2 | ) | 164.1 | ||||||||||||||
Loss from discontinued operations, net of taxes1 | - | - | (4.5 | ) | - | (4.5 | ) | |||||||||||||
Net income/(loss) | 159.6 | - | 183.2 | (183.2 | ) | 159.6 | ||||||||||||||
Comprehensive income/(loss) | $ | 208.4 | $ | - | $ | 232.0 | $ | (232.0 | ) | $ | 208.4 | |||||||||
58
Condensed Consolidating Statements of Operations | ||||||||||||||||||||
(for the 6 months ended June 30, 2015) | Shire plc (Parent Guarantor) | Baxalta Inc. (Issuer) | Non-Guarantor subsidiaries | Eliminations | Consolidated | |||||||||||||||
(in millions) | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Product sales | $ | - | $ | - | $ | 2,899.4 | $ | - | $ | 2,899.4 | ||||||||||
Royalties & other revenues | - | - | 146.6 | - | 146.6 | |||||||||||||||
Total revenues | - | - | 3,046.0 | - | 3,046.0 | |||||||||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of product sales | - | - | 455.8 | - | 455.8 | |||||||||||||||
Research and development | - | - | 969.6 | - | 969.6 | |||||||||||||||
Selling, general and administrative | 12.8 | - | 900.8 | 0.7 | 914.3 | |||||||||||||||
Integration and acquisition costs | - | - | (136.7 | ) | - | (136.7 | ) | |||||||||||||
Amortization of acquired intangible assets | - | - | 219.6 | - | 219.6 | |||||||||||||||
Other operating expenses | - | - | 16.2 | - | 16.2 | |||||||||||||||
Total operating expenses | 12.8 | - | 2,425.3 | 0.7 | 2,438.8 | |||||||||||||||
Operating income/(loss) from continuing operations | (12.8 | ) | - | 620.7 | (0.7 | ) | 607.2 | |||||||||||||
Interest income/(expense), net | (30.4 | ) | - | 12.1 | - | (18.3 | ) | |||||||||||||
Other income/(expense), net | 1.2 | - | 1.1 | - | 2.3 | |||||||||||||||
Total other (expense)/income, net | (29.2 | ) | - | 13.2 | - | (16.0 | ) | |||||||||||||
Income/(loss) from continuing operations before income taxes and equity in (losses)/earnings of equity method investees | (42.0 | ) | - | 633.9 | (0.7 | ) | 591.2 | |||||||||||||
Income tax benefit/(charge) | 1.3 | - | (14.6 | ) | - | (13.3 | ) | |||||||||||||
Equity in income/(losses) of equity method investees, net of taxes | 610.7 | - | (0.9 | ) | (610.7 | ) | (0.9 | ) | ||||||||||||
Income/(loss) from continuing operations, net of taxes | 570.0 | - | 618.4 | (611.4 | ) | 577.0 | ||||||||||||||
Loss from discontinued operations, net of taxes1 | - | - | (7.0 | ) | - | (7.0 | ) | |||||||||||||
Net income/(loss) | 570.0 | - | 611.4 | (611.4 | ) | 570.0 | ||||||||||||||
Comprehensive (loss)/income | $ | 490.0 | $ | - | $ | 531.4 | $ | (531.4 | ) | $ | 490.0 | |||||||||
59
Condensed Consolidating Statement of Cash Flows | ||||||||||||||||||||
(For the six months ended June 30, 2016) | Shire plc (Parent Guarantor) | Baxalta Inc. (Issuer) | Non-Guarantor subsidiaries | Eliminations | Consolidated | |||||||||||||||
(in millions) | ||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||||||
Net cash provided (used in) operating activities | $ | (13.8 | ) | $ | 1.6 | $ | 992.6 | $ | - | $ | 980.4 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Transactions with subsidiaries | (1,900.0 | ) | - | (21,625.6 | ) | 23,525.6 | - | |||||||||||||
Movements in restricted cash | - | - | 67.2 | - | 67.2 | |||||||||||||||
Purchases of businesses, net of cash acquired | (19,049.0 | ) | - | 1,572.8 | - | (17,476.2 | ) | |||||||||||||
Purchases of non-current investments and PP&E | - | (1.9 | ) | (177.2 | ) | - | (179.1 | ) | ||||||||||||
Proceeds from sale of product rights | - | - | 5.6 | - | 5.6 | |||||||||||||||
Other, net | - | - | (2.3 | ) | - | (2.3 | ) | |||||||||||||
Net cash provided by (used in) investing activities | (20,949.0 | ) | (1.9 | ) | (20,159.5 | ) | 23,525.6 | (17,584.8 | ) | |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Proceeds from revolving line of credit, long term and short term borrowings | 905.0 | - | 17,990.0 | - | 18,895.0 | |||||||||||||||
Repayment of revolving line of credit, long term and short term borrowings | (1,500.0 | ) | - | (0.3 | ) | - | (1,500.3 | ) | ||||||||||||
Proceeds from intercompany borrowings | 21,572.2 | 53.4 | 1,900.0 | (23,525.6 | ) | - | ||||||||||||||
Payment of dividend | (14.4 | ) | - | (115.8 | ) | - | (130.2 | ) | ||||||||||||
Excess tax benefit associated with exercise of stock options | - | - | 5.1 | - | 5.1 | |||||||||||||||
Debt issuance costs | - | - | (112.3 | ) | - | (112.3 | ) | |||||||||||||
Contingent consideration payments | - | - | (4.2 | ) | - | (4.2 | ) | |||||||||||||
Other, net | - | 0.3 | 10.8 | - | 11.1 | |||||||||||||||
Net cash provided by (used in) financing activities | 20,962.8 | 53.7 | 19,673.3 | (23,525.6 | ) | 17,164.2 | ||||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | - | - | (1.9 | ) | - | (1.9 | ) | |||||||||||||
Net increase in cash and cash equivalents | - | 53.4 | 504.5 | - | 557.9 | |||||||||||||||
Cash and cash equivalents at beginning of period | - | - | 135.5 | - | 135.5 | |||||||||||||||
Cash and cash equivalents at end of period | $ | - | $ | 53.4 | $ | 640.0 | $ | - | $ | 693.4 | ||||||||||
60
Condensed Consolidating Statement of Cash Flows | ||||||||||||||||||||
(For the six months ended June 30, 2015) | Shire plc (Parent Guarantor) | Baxalta Inc. (Issuer) | Non-Guarantor subsidiaries | Eliminations | Consolidated | |||||||||||||||
(in millions) | ||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||||||
Net cash provided (used in) operating activities | $ | (85.0 | ) | $ | - | $ | 1,098.9 | $ | - | $ | 1,013.9 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Transactions with subsidiaries | (3,570.0 | ) | - | (2,345.1 | ) | 5,915.1 | - | |||||||||||||
Movements in restricted cash | - | - | (19.5 | ) | - | (19.5 | ) | |||||||||||||
Purchases of businesses, net of cash acquired | - | - | (5,249.2 | ) | - | (5,249.2 | ) | |||||||||||||
Purchases of non-current investments and PP&E | - | - | (44.7 | ) | - | (44.7 | ) | |||||||||||||
Proceeds from short-term investments | - | - | 67.0 | - | 67.0 | |||||||||||||||
Proceeds from sale of product rights | - | - | 8.8 | - | 8.8 | |||||||||||||||
Proceeds from disposal of non-current investments | - | - | 4.4 | - | 4.4 | |||||||||||||||
Other, net | - | - | (0.9 | ) | - | (0.9 | ) | |||||||||||||
Net cash provided by (used in) investing activities | (3,570.0 | ) | - | (7,579.2 | ) | 5,915.1 | (5,234.1 | ) | ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Proceeds from revolving line of credit, long term and short term borrowings | 2,850.0 | - | 75.6 | - | 2,925.6 | |||||||||||||||
Repayment of revolving line of credit, long term and short term borrowings | (1,530.0 | ) | - | (0.9 | ) | - | (1,530.9 | ) | ||||||||||||
Proceeds from intercompany borrowings | 2,345.1 | - | 3,570.0 | (5,915.1 | ) | - | ||||||||||||||
Payment of dividend | (5.6 | ) | - | (104.6 | ) | - | (110.2 | ) | ||||||||||||
Excess tax benefit associated with exercise of stock options | - | - | 27.0 | - | 27.0 | |||||||||||||||
Contingent consideration payments | - | - | (4.5 | ) | - | (4.5 | ) | |||||||||||||
Other, net | (4.5 | ) | - | - | - | (4.5 | ) | |||||||||||||
Net cash provided by (used in) financing activities | 3,655.0 | - | 3,562.6 | (5,915.1 | ) | 1,302.5 | ||||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | - | - | (0.7 | ) | - | (0.7 | ) | |||||||||||||
Net decrease in cash and cash equivalents | - | - | (2,918.4 | ) | - | (2,918.4 | ) | |||||||||||||
Cash and cash equivalents at beginning of period | - | - | 2,982.4 | - | 2,982.4 | |||||||||||||||
Cash and cash equivalents at end of period | $ | - | $ | - | $ | 64.0 | $ | - | $ | 64.0 | ||||||||||
61
Condensed Consolidating Balance Sheet | |||||||||||||||||||||||||||||||
(As of September 30, 2016) | Shire plc (Parent Guarantor) | SAIIDAC (Subsidiary Issuer) | Baxalta Inc. (Subsidiary Issuer) | Non-Guarantor Non-Issuer Subsidiaries | Non-Guarantor Subsidiaries of SAIIDAC Notes | Non-Guarantor Subsidiaries of Baxalta Notes | Eliminations | Consolidated | |||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||
ASSETS | |||||||||||||||||||||||||||||||
Current assets: | |||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | 308.6 | $ | 420.0 | $ | 728.6 | $ | 420.0 | $ | — | $ | 728.6 | |||||||||||||||
Restricted cash | — | — | — | 20.1 | 20.1 | 20.1 | — | 20.1 | |||||||||||||||||||||||
Accounts receivable, net | — | — | — | 2,633.4 | 2,633.4 | 2,633.4 | — | 2,633.4 | |||||||||||||||||||||||
Inventories | — | — | — | 4,857.1 | 4,857.1 | 4,857.1 | — | 4,857.1 | |||||||||||||||||||||||
Prepaid expenses and other current assets | 1.8 | 0.7 | 12.7 | 650.1 | 662.8 | 650.8 | — | 665.3 | |||||||||||||||||||||||
Intercompany receivables | — | 50.2 | 432.6 | 3,742.3 | 4,174.9 | 3,792.5 | (4,225.1 | ) | — | ||||||||||||||||||||||
Short term intercompany loan receivable | — | 1,796.3 | — | — | — | 1,796.3 | (1,796.3 | ) | — | ||||||||||||||||||||||
Total current assets | 1.8 | 1,847.2 | 753.9 | 12,323.0 | 13,076.9 | 14,170.2 | (6,021.4 | ) | 8,904.5 | ||||||||||||||||||||||
Investments | 36,448.3 | — | 35,740.2 | 12,563.2 | 48,303.4 | 12,563.2 | (84,559.9 | ) | 191.8 | ||||||||||||||||||||||
Property, plant and equipment, net | — | — | 25.9 | 6,501.8 | 6,527.7 | 6,501.8 | — | 6,527.7 | |||||||||||||||||||||||
Goodwill | — | — | — | 14,850.6 | 14,850.6 | 14,850.6 | — | 14,850.6 | |||||||||||||||||||||||
Intangible assets, net | — | — | — | 38,871.5 | 38,871.5 | 38,871.5 | — | 38,871.5 | |||||||||||||||||||||||
Long term intercompany loan receivable | — | 15,825.3 | — | — | — | 15,825.3 | (15,825.3 | ) | — | ||||||||||||||||||||||
Other non-current assets | 4.2 | — | 437.3 | 180.7 | 618.0 | 180.7 | (217.0 | ) | 405.2 | ||||||||||||||||||||||
Total assets | $ | 36,454.3 | $ | 17,672.5 | $ | 36,957.3 | $ | 85,290.8 | $ | 122,248.1 | $ | 102,963.3 | $ | (106,623.6 | ) | $ | 69,751.3 | ||||||||||||||
LIABILITIES AND EQUITY | |||||||||||||||||||||||||||||||
Current liabilities: | |||||||||||||||||||||||||||||||
Accounts payable and accrued expenses | $ | 4.7 | $ | 18.4 | $ | 101.5 | $ | 3,897.1 | $ | 3,998.6 | $ | 3,915.5 | $ | — | $ | 4,021.7 | |||||||||||||||
Short term borrowings | 920.0 | 1,796.3 | — | 20.8 | 20.8 | 1,817.1 | — | 2,737.1 | |||||||||||||||||||||||
Intercompany payables | 4,225.1 | — | — | — | — | — | (4,225.1 | ) | — | ||||||||||||||||||||||
Short term intercompany loan payable | — | — | — | 1,796.3 | 1,796.3 | 1,796.3 | (1,796.3 | ) | — | ||||||||||||||||||||||
Other current liabilities | — | 1.1 | 48.4 | 302.6 | 351.0 | 303.7 | 352.1 | ||||||||||||||||||||||||
Total current liabilities | 5,149.8 | 1,815.8 | 149.9 | 6,016.8 | 6,166.7 | 7,832.6 | (6,021.4 | ) | 7,110.9 | ||||||||||||||||||||||
Long term borrowings | — | 15,825.3 | 5,104.8 | 58.8 | 5,163.6 | 15,884.1 | — | 20,988.9 | |||||||||||||||||||||||
Deferred tax liability | — | — | — | 9,543.5 | 9,543.5 | 9,543.5 | (217.0 | ) | 9,326.5 | ||||||||||||||||||||||
Long term intercompany loan payable | 1,110.3 | — | — | 14,715.0 | 14,715.0 | 14,715.0 | (15,825.3 | ) | — | ||||||||||||||||||||||
Other non-current liabilities | 408.5 | 2.0 | 64.0 | 2,064.8 | 2,128.8 | 2,066.8 | — | 2,539.3 | |||||||||||||||||||||||
Total liabilities | 6,668.6 | 17,643.1 | 5,318.7 | 32,398.9 | 37,717.6 | 50,042.0 | (22,063.7 | ) | 39,965.6 | ||||||||||||||||||||||
Total equity | 29,785.7 | 29.4 | 31,638.6 | 52,891.9 | 84,530.5 | 52,921.3 | (84,559.9 | ) | 29,785.7 | ||||||||||||||||||||||
Total liabilities and equity | $ | 36,454.3 | $ | 17,672.5 | $ | 36,957.3 | $ | 85,290.8 | $ | 122,248.1 | $ | 102,963.3 | $ | (106,623.6 | ) | $ | 69,751.3 |
Condensed Consolidating Balance Sheet | |||||||||||||||||||||||||||||||
(As of December 31, 2015) | Shire plc (Parent Guarantor) | SAIIDAC (Subsidiary Issuer) | Baxalta Inc. (Subsidiary Issuer) | Non-Guarantor Non-Issuer Subsidiaries | Non-Guarantor Subsidiaries of SAIIDAC Notes | Non-Guarantor Subsidiaries of Baxalta Notes | Eliminations | Consolidated | |||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||
ASSETS | |||||||||||||||||||||||||||||||
Current assets: | |||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | — | $ | 135.5 | $ | 135.5 | $ | 135.5 | $ | — | $ | 135.5 | |||||||||||||||
Restricted cash | — | — | — | 86.0 | 86.0 | 86.0 | — | 86.0 | |||||||||||||||||||||||
Accounts receivable, net | — | — | — | 1,201.2 | 1,201.2 | 1,201.2 | — | 1,201.2 | |||||||||||||||||||||||
Inventories | — | — | — | 635.4 | 635.4 | 635.4 | — | 635.4 | |||||||||||||||||||||||
Prepaid expenses and other current assets | 1.9 | 9.6 | — | 185.9 | 185.9 | 195.5 | — | 197.4 | |||||||||||||||||||||||
Intercompany receivables | — | — | — | 3,164.9 | 3,164.9 | 3,164.9 | (3,164.9 | ) | — | ||||||||||||||||||||||
Total current assets | 1.9 | 9.6 | — | 5,408.9 | 5,408.9 | 5,418.5 | (3,164.9 | ) | 2,255.5 | ||||||||||||||||||||||
Investments | 14,477.2 | — | — | 50.8 | 50.8 | 50.8 | (14,477.2 | ) | 50.8 | ||||||||||||||||||||||
Property, plant and equipment, net | — | — | — | 828.1 | 828.1 | 828.1 | — | 828.1 | |||||||||||||||||||||||
Goodwill | — | — | — | 4,147.8 | 4,147.8 | 4,147.8 | — | 4,147.8 | |||||||||||||||||||||||
Intangible assets, net | — | — | — | 9,173.3 | 9,173.3 | 9,173.3 | — | 9,173.3 | |||||||||||||||||||||||
Other non-current assets | 5.3 | 8.3 | — | 140.7 | 140.7 | 149.0 | — | 154.3 | |||||||||||||||||||||||
Total assets | $ | 14,484.4 | $ | 17.9 | $ | — | $ | 19,749.6 | $ | 19,749.6 | $ | 19,767.5 | $ | (17,642.1 | ) | $ | 16,609.8 | ||||||||||||||
LIABILITIES AND EQUITY | |||||||||||||||||||||||||||||||
Current liabilities: | |||||||||||||||||||||||||||||||
Accounts payable and accrued expenses | $ | 10.0 | $ | — | $ | — | $ | 2,040.6 | $ | 2,040.6 | $ | 2,040.6 | $ | — | $ | 2,050.6 | |||||||||||||||
Short term borrowings | 1,500.0 | — | — | 11.5 | 11.5 | 11.5 | — | 1,511.5 | |||||||||||||||||||||||
Intercompany payables | 3,145.3 | 19.6 | — | — | — | 19.6 | (3,164.9 | ) | — | ||||||||||||||||||||||
Other current liabilities | — | — | — | 144.0 | 144.0 | 144.0 | — | 144.0 | |||||||||||||||||||||||
Total current liabilities | 4,655.3 | 19.6 | — | 2,196.1 | 2,196.1 | 2,215.7 | (3,164.9 | ) | 3,706.1 | ||||||||||||||||||||||
Long term borrowings | — | — | — | 69.9 | 69.9 | 69.9 | — | 69.9 | |||||||||||||||||||||||
Deferred tax liability | — | — | — | 2,205.9 | 2,205.9 | 2,205.9 | — | 2,205.9 | |||||||||||||||||||||||
Other non-current liabilities | — | — | — | 798.8 | 798.8 | 798.8 | — | 798.8 | |||||||||||||||||||||||
Total liabilities | 4,655.3 | 19.6 | — | 5,270.7 | 5,270.7 | 5,290.3 | (3,164.9 | ) | 6,780.7 | ||||||||||||||||||||||
Total equity | 9,829.1 | (1.7 | ) | — | 14,478.9 | 14,478.9 | 14,477.2 | (14,477.2 | ) | 9,829.1 | |||||||||||||||||||||
Total liabilities and equity | $ | 14,484.4 | $ | 17.9 | $ | — | $ | 19,749.6 | $ | 19,749.6 | $ | 19,767.5 | $ | (17,642.1 | ) | $ | 16,609.8 |
Condensed Consolidating Statements of Operations | |||||||||||||||||||||||||||||||
(for the three months ended September 30, 2016) | Shire plc (Parent Guarantor) | SAIIDAC (Subsidiary Issuer) | Baxalta Inc. (Subsidiary Issuer) | Non-Guarantor Non-Issuer Subsidiaries | Non-Guarantor Subsidiaries of SAIIDAC Notes | Non-Guarantor Subsidiaries of Baxalta Notes | Eliminations | Consolidated | |||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||
Product sales | $ | — | $ | — | $ | — | $ | 3,315.4 | $ | 3,315.4 | $ | 3,315.4 | $ | — | $ | 3,315.4 | |||||||||||||||
Royalties & other revenues | — | — | — | 136.7 | 136.7 | 136.7 | — | 136.7 | |||||||||||||||||||||||
Total revenues | — | — | — | 3,452.1 | 3,452.1 | 3,452.1 | — | 3,452.1 | |||||||||||||||||||||||
Costs and expenses: | |||||||||||||||||||||||||||||||
Cost of sales | — | — | — | 1,736.2 | 1,736.2 | 1,736.2 | — | 1,736.2 | |||||||||||||||||||||||
Research and development | — | — | — | 511.1 | 511.1 | 511.1 | — | 511.1 | |||||||||||||||||||||||
Selling, general and administrative | (2.5 | ) | — | 10.8 | 867.3 | 878.1 | 867.3 | — | 875.6 | ||||||||||||||||||||||
Amortization of acquired intangible assets | — | — | — | 354.9 | 354.9 | 354.9 | — | 354.9 | |||||||||||||||||||||||
Integration and acquisition costs | — | — | 50.0 | 234.5 | 284.5 | 234.5 | — | 284.5 | |||||||||||||||||||||||
Reorganization costs | — | — | — | 101.4 | 101.4 | 101.4 | — | 101.4 | |||||||||||||||||||||||
Gain on sale of product rights | — | — | — | (5.7 | ) | (5.7 | ) | (5.7 | ) | — | (5.7 | ) | |||||||||||||||||||
Total operating expenses | (2.5 | ) | — | 60.8 | 3,799.7 | 3,860.5 | 3,799.7 | — | 3,858.0 | ||||||||||||||||||||||
Operating income/(loss) from continuing operations | 2.5 | — | (60.8 | ) | (347.6 | ) | (408.4 | ) | (347.6 | ) | — | (405.9 | ) | ||||||||||||||||||
Interest income/(expense), net | (23.2 | ) | 61.7 | (26.1 | ) | (190.0 | ) | (216.1 | ) | (128.3 | ) | — | (177.6 | ) | |||||||||||||||||
Other expense, net | (0.1 | ) | — | (0.1 | ) | (13.5 | ) | (13.6 | ) | (13.5 | ) | — | (13.7 | ) | |||||||||||||||||
Total other income/(expense), net | (23.3 | ) | 61.7 | (26.2 | ) | (203.5 | ) | (229.7 | ) | (141.8 | ) | — | (191.3 | ) | |||||||||||||||||
Income/(loss) from continuing operations before income taxes and equity in (losses)/earnings of equity method investees | (20.8 | ) | 61.7 | (87.0 | ) | (551.1 | ) | (638.1 | ) | (489.4 | ) | — | (597.2 | ) | |||||||||||||||||
Income tax benefit/(expense) | — | (15.4 | ) | 18.9 | 226.1 | 245.0 | 210.7 | — | 229.6 | ||||||||||||||||||||||
Equity in income/(losses) of equity method investees, net of taxes | (366.0 | ) | — | (505.0 | ) | (0.9 | ) | (505.9 | ) | (0.9 | ) | 871.0 | (0.9 | ) | |||||||||||||||||
Income/(loss) from continuing operations, net of taxes | (386.8 | ) | 46.3 | (573.1 | ) | (325.9 | ) | (899.0 | ) | (279.6 | ) | 871.0 | (368.5 | ) | |||||||||||||||||
Loss from discontinued operations, net of taxes | — | — | — | (18.3 | ) | (18.3 | ) | (18.3 | ) | — | (18.3 | ) | |||||||||||||||||||
Net income/(loss) | (386.8 | ) | 46.3 | (573.1 | ) | (344.2 | ) | (917.3 | ) | (297.9 | ) | 871.0 | (386.8 | ) | |||||||||||||||||
Comprehensive income/(loss) | $ | (135.2 | ) | $ | 46.3 | $ | (333.4 | ) | $ | (583.9 | ) | $ | (917.3 | ) | $ | (537.6 | ) | $ | 871.0 | $ | (135.2 | ) |
Condensed Consolidating Statements of Operations | |||||||||||||||||||||||||||||||
(for the nine months ended September 30, 2016) | Shire plc (Parent Guarantor) | SAIIDAC (Subsidiary Issuer) | Baxalta Inc. (Subsidiary Issuer) | Non-Guarantor Non-Issuer Subsidiaries | Non-Guarantor Subsidiaries of SAIIDAC Notes | Non-Guarantor Subsidiaries of Baxalta Notes | Eliminations | Consolidated | |||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||
Product sales | $ | — | $ | — | $ | — | $ | 7,264.8 | $ | 7,264.8 | $ | 7,264.8 | $ | — | $ | 7,264.8 | |||||||||||||||
Royalties & other revenues | — | — | — | 325.7 | 325.7 | 325.7 | — | 325.7 | |||||||||||||||||||||||
Total revenues | — | — | — | 7,590.5 | 7,590.5 | 7,590.5 | — | 7,590.5 | |||||||||||||||||||||||
Costs and expenses: | |||||||||||||||||||||||||||||||
Cost of sales | — | — | — | 2,762.9 | 2,762.9 | 2,762.9 | — | 2,762.9 | |||||||||||||||||||||||
Research and development | — | — | 0.4 | 1,022.6 | 1,023.0 | 1,022.6 | — | 1,023.0 | |||||||||||||||||||||||
Selling, general and administrative | 33.3 | — | 19.4 | 1,973.1 | 1,992.5 | 1,973.1 | — | 2,025.8 | |||||||||||||||||||||||
Amortization of acquired intangible assets | — | — | — | 702.5 | 702.5 | 702.5 | — | 702.5 | |||||||||||||||||||||||
Integration and acquisition costs | — | — | 259.7 | 478.9 | 738.6 | 478.9 | — | 738.6 | |||||||||||||||||||||||
Reorganization costs | — | — | — | 115.7 | 115.7 | 115.7 | — | 115.7 | |||||||||||||||||||||||
Gain on sale of product rights | — | — | — | (12.2 | ) | (12.2 | ) | (12.2 | ) | — | (12.2 | ) | |||||||||||||||||||
Total operating expenses | 33.3 | — | 279.5 | 7,043.5 | 7,323.0 | 7,043.5 | — | 7,356.3 | |||||||||||||||||||||||
Operating income (loss) from continuing operations | (33.3 | ) | — | (279.5 | ) | 547.0 | 267.5 | 547.0 | — | 234.2 | |||||||||||||||||||||
Interest income/(expense), net | (67.7 | ) | 41.5 | (32.4 | ) | (248.3 | ) | (280.7 | ) | (206.8 | ) | — | (306.9 | ) | |||||||||||||||||
Other income/(expense), net | 0.8 | — | 7.6 | (24.6 | ) | (17.0 | ) | (24.6 | ) | — | (16.2 | ) | |||||||||||||||||||
Total other income/(expense), net | (66.9 | ) | 41.5 | (24.8 | ) | (272.9 | ) | (297.7 | ) | (231.4 | ) | — | (323.1 | ) | |||||||||||||||||
Income/(loss) from continuing operations before income taxes and equity in (losses)/earnings of equity method investees | (100.2 | ) | 41.5 | (304.3 | ) | 274.1 | (30.2 | ) | 315.6 | — | (88.9 | ) | |||||||||||||||||||
Income tax benefit/(expense) | 1.9 | (10.3 | ) | 77.7 | 149.1 | 226.8 | 138.8 | — | 218.4 | ||||||||||||||||||||||
Equity in income/(losses) of equity method investees, net of taxes | (31.6 | ) | — | (635.9 | ) | (1.9 | ) | (637.8 | ) | (1.9 | ) | 667.5 | (1.9 | ) | |||||||||||||||||
Income/(loss) from continuing operations, net of taxes | (129.9 | ) | 31.2 | (862.5 | ) | 421.3 | (441.2 | ) | 452.5 | 667.5 | 127.6 | ||||||||||||||||||||
Loss from discontinued operations, net of taxes | — | — | — | (257.5 | ) | (257.5 | ) | (257.5 | ) | — | (257.5 | ) | |||||||||||||||||||
Net income/(loss) | (129.9 | ) | 31.2 | (862.5 | ) | 163.8 | (698.7 | ) | 195.0 | 667.5 | (129.9 | ) | |||||||||||||||||||
Comprehensive income/(loss) | $ | (80.3 | ) | $ | 31.2 | $ | (809.0 | ) | $ | (278.0 | ) | $ | (1,087.0 | ) | $ | (246.8 | ) | $ | 1,055.8 | $ | (80.3 | ) |
Condensed Consolidating Statements of Operations | |||||||||||||||||||||||||||||||
(for the three months ended September 30, 2015) | Shire plc (Parent Guarantor) | SAIIDAC (Subsidiary Issuer) | Baxalta Inc. (Subsidiary Issuer) | Non-Guarantor Non-Issuer Subsidiaries | Non-Guarantor Subsidiaries of SAIIDAC Notes | Non-Guarantor Subsidiaries of Baxalta Notes | Eliminations | Consolidated | |||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||
Product sales | $ | — | $ | — | $ | — | $ | 1,576.8 | $ | 1,576.8 | $ | 1,576.8 | $ | — | $ | 1,576.8 | |||||||||||||||
Royalties & other revenues | — | — | — | 78.2 | 78.2 | 78.2 | — | 78.2 | |||||||||||||||||||||||
Total revenues | — | — | — | 1,655.0 | 1,655.0 | 1,655.0 | — | 1,655.0 | |||||||||||||||||||||||
Costs and expenses: | |||||||||||||||||||||||||||||||
Cost of sales | — | — | — | 262.7 | 262.7 | 262.7 | — | 262.7 | |||||||||||||||||||||||
Research and development | — | — | — | 241.2 | 241.2 | 241.2 | — | 241.2 | |||||||||||||||||||||||
Selling, general and administrative | 9.0 | — | — | 433.3 | 433.3 | 433.3 | — | 442.3 | |||||||||||||||||||||||
Amortization of acquired intangible assets | — | — | — | 132.7 | 132.7 | 132.7 | — | 132.7 | |||||||||||||||||||||||
Integration and acquisition costs | — | — | — | 89.9 | 89.9 | 89.9 | — | 89.9 | |||||||||||||||||||||||
Reorganization costs | — | — | — | 31.1 | 31.1 | 31.1 | — | 31.1 | |||||||||||||||||||||||
Other operating expenses | — | — | — | (0.7 | ) | (0.7 | ) | (0.7 | ) | — | (0.7 | ) | |||||||||||||||||||
Total operating expenses | 9.0 | — | — | 1,190.2 | 1,190.2 | 1,190.2 | — | 1,199.2 | |||||||||||||||||||||||
Operating income (loss) from continuing operations | (9.0 | ) | — | — | 464.8 | 464.8 | 464.8 | — | 455.8 | ||||||||||||||||||||||
Interest income/(expense), net | (16.5 | ) | — | — | 6.6 | 6.6 | 6.6 | — | (9.9 | ) | |||||||||||||||||||||
Other income, net | 0.1 | — | — | 9.5 | 9.5 | 9.5 | — | 9.6 | |||||||||||||||||||||||
Total other income/(expense), net | (16.4 | ) | — | — | 16.1 | 16.1 | 16.1 | — | (0.3 | ) | |||||||||||||||||||||
Income/(loss) from continuing operations before income taxes and equity in (losses)/earnings of equity method investees | (25.4 | ) | — | — | 480.9 | 480.9 | 480.9 | — | 455.5 | ||||||||||||||||||||||
Income tax benefit | 0.4 | — | — | 21.9 | 21.9 | 21.9 | — | 22.3 | |||||||||||||||||||||||
Equity in income/(losses) of equity method investees, net of taxes | 477.8 | — | — | (0.7 | ) | (0.7 | ) | (0.7 | ) | (477.8 | ) | (0.7 | ) | ||||||||||||||||||
Income/(loss) from continuing operations, net of taxes | 452.8 | — | — | 502.1 | 502.1 | 502.1 | (477.8 | ) | 477.1 | ||||||||||||||||||||||
Loss from discontinued operations, net of taxes | — | — | — | (24.3 | ) | (24.3 | ) | (24.3 | ) | — | (24.3 | ) | |||||||||||||||||||
Net income/(loss) | 452.8 | — | — | 477.8 | 477.8 | 477.8 | (477.8 | ) | 452.8 | ||||||||||||||||||||||
Comprehensive income/(loss) | $ | 409.2 | $ | — | $ | — | $ | 434.2 | $ | 434.2 | $ | 434.2 | $ | (434.2 | ) | $ | 409.2 |
Condensed Consolidating Statements of Operations | |||||||||||||||||||||||||||||||
(for the nine months ended September 30, 2015) | Shire plc (Parent Guarantor) | SAIIDAC (Subsidiary Issuer) | Baxalta Inc. (Subsidiary Issuer) | Non-Guarantor Non-Issuer Subsidiaries | Non-Guarantor Subsidiaries of SAIIDAC Notes | Non-Guarantor Subsidiaries of Baxalta Notes | Eliminations | Consolidated | |||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||
Product sales | $ | — | $ | — | $ | — | $ | 4,476.2 | $ | 4,476.2 | $ | 4,476.2 | $ | — | $ | 4,476.2 | |||||||||||||||
Royalties & other revenues | — | — | — | 224.8 | 224.8 | 224.8 | — | 224.8 | |||||||||||||||||||||||
Total revenues | — | — | — | 4,701.0 | 4,701.0 | 4,701.0 | — | 4,701.0 | |||||||||||||||||||||||
Costs and expenses: | |||||||||||||||||||||||||||||||
Cost of sales | — | — | — | 718.5 | 718.5 | 718.5 | — | 718.5 | |||||||||||||||||||||||
Research and development | — | — | — | 1,210.8 | 1,210.8 | 1,210.8 | — | 1,210.8 | |||||||||||||||||||||||
Selling, general and administrative | 22.5 | — | — | 1,334.1 | 1,334.1 | 1,334.1 | — | 1,356.6 | |||||||||||||||||||||||
Amortization of acquired intangible assets | — | — | — | 352.3 | 352.3 | 352.3 | — | 352.3 | |||||||||||||||||||||||
Integration and acquisition costs | — | — | — | (46.8 | ) | (46.8 | ) | (46.8 | ) | — | (46.8 | ) | |||||||||||||||||||
Reorganization costs | — | — | — | 59.6 | 59.6 | 59.6 | — | 59.6 | |||||||||||||||||||||||
Other operating expenses | — | — | — | (13.0 | ) | (13.0 | ) | (13.0 | ) | — | (13.0 | ) | |||||||||||||||||||
Total operating expenses | 22.5 | — | — | 3,615.5 | 3,615.5 | 3,615.5 | — | 3,638.0 | |||||||||||||||||||||||
Operating income (loss) from continuing operations | (22.5 | ) | — | — | 1,085.5 | 1,085.5 | 1,085.5 | — | 1,063.0 | ||||||||||||||||||||||
Interest income/(expense), net | (46.9 | ) | — | — | 18.7 | 18.7 | 18.7 | — | (28.2 | ) | |||||||||||||||||||||
Other income, net | 1.3 | — | — | 10.6 | 10.6 | 10.6 | — | 11.9 | |||||||||||||||||||||||
Total other income/(expense), net | (45.6 | ) | — | — | 29.3 | 29.3 | 29.3 | — | (16.3 | ) | |||||||||||||||||||||
Income/(loss) from continuing operations before income taxes and equity in (losses)/earnings of equity method investees | (68.1 | ) | — | — | 1,114.8 | 1,114.8 | 1,114.8 | — | 1,046.7 | ||||||||||||||||||||||
Income tax benefit | 1.7 | — | — | 7.3 | 7.3 | 7.3 | — | 9.0 | |||||||||||||||||||||||
Equity in income/(losses) of equity method investees, net of taxes | 1,089.2 | — | — | (1.6 | ) | (1.6 | ) | (1.6 | ) | (1,089.2 | ) | (1.6 | ) | ||||||||||||||||||
Income/(loss) from continuing operations, net of taxes | 1,022.8 | — | — | 1,120.5 | 1,120.5 | 1,120.5 | (1,089.2 | ) | 1,054.1 | ||||||||||||||||||||||
Loss from discontinued operations, net of taxes | — | — | — | (31.3 | ) | (31.3 | ) | (31.3 | ) | — | (31.3 | ) | |||||||||||||||||||
Net income/(loss) | 1,022.8 | — | — | 1,089.2 | 1,089.2 | 1,089.2 | (1,089.2 | ) | 1,022.8 | ||||||||||||||||||||||
Comprehensive income/(loss) | $ | 899.2 | $ | — | $ | — | $ | 965.6 | $ | 965.6 | $ | 965.6 | $ | (965.6 | ) | $ | 899.2 |
Condensed Consolidating Statement of Cash Flows | |||||||||||||||||||||||||||||||
(For the nine months ended September 30, 2016) | Shire plc (Parent Guarantor) | SAIIDAC (Subsidiary Issuer) | Baxalta Inc. (Subsidiary Issuer) | Non-Guarantor Non-Issuer Subsidiaries | Non-Guarantor Subsidiaries of SAIIDAC Notes | Non-Guarantor Subsidiaries of Baxalta Notes | Eliminations | Consolidated | |||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||||||||||||||||||||||
Net cash provided (used in) operating activities | $ | (79.8 | ) | $ | 182.3 | $ | (51.8 | ) | $ | 1,455.3 | $ | 1,403.5 | $ | 1,637.6 | $ | — | $ | 1,506.0 | |||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||||||||||||||||
Transactions with subsidiaries | (2,390.0 | ) | (18,172.0 | ) | — | (2,863.7 | ) | (2,863.7 | ) | (21,035.7 | ) | 23,425.7 | — | ||||||||||||||||||
Movements in restricted cash | — | — | — | 68.3 | 68.3 | 68.3 | — | 68.3 | |||||||||||||||||||||||
Purchases of businesses, net of cash acquired | — | — | — | (17,476.2 | ) | (17,476.2 | ) | (17,476.2 | ) | — | (17,476.2 | ) | |||||||||||||||||||
Purchases of PP&E and non-current investments | — | — | (6.0 | ) | (396.5 | ) | (402.5 | ) | (396.5 | ) | — | (402.5 | ) | ||||||||||||||||||
Proceeds from sale of product rights | — | — | — | 7.8 | 7.8 | 7.8 | — | 7.8 | |||||||||||||||||||||||
Proceeds from disposal of non-current investments and PP&E | — | — | — | 0.6 | 0.6 | 0.6 | — | 0.6 | |||||||||||||||||||||||
Other, net | — | — | — | (9.3 | ) | (9.3 | ) | (9.3 | ) | — | (9.3 | ) | |||||||||||||||||||
Net cash provided by (used in) investing activities | (2,390.0 | ) | (18,172.0 | ) | (6.0 | ) | (20,669.0 | ) | (20,675.0 | ) | (38,841.0 | ) | 23,425.7 | (17,811.3 | ) | ||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||||||||||||||||
Proceeds from revolving line of credit, long term and short term borrowings | 1,655.0 | 30,079.9 | — | 7.4 | 7.4 | 30,087.3 | — | 31,742.3 | |||||||||||||||||||||||
Repayment of revolving line of credit, long term and short term borrowings | (2,215.8 | ) | (12,409.2 | ) | — | (7.9 | ) | (7.9 | ) | (12,417.1 | ) | — | (14,632.9 | ) | |||||||||||||||||
Proceeds from intercompany borrowings | 3,045.3 | 490.0 | 308.4 | 19,582.0 | 19,890.4 | 20,072.0 | (23,425.7 | ) | — | ||||||||||||||||||||||
Payment of dividend | (15.0 | ) | — | — | (115.2 | ) | (115.2 | ) | (115.2 | ) | — | (130.2 | ) | ||||||||||||||||||
Debt issuance costs | — | (171.0 | ) | — | — | — | (171.0 | ) | — | (171.0 | ) | ||||||||||||||||||||
Proceeds from exercise of options | 0.3 | — | 87.9 | 10.7 | 98.6 | 10.7 | — | 98.9 | |||||||||||||||||||||||
Other, net | — | — | (29.9 | ) | 23.4 | (6.5 | ) | 23.4 | — | (6.5 | ) | ||||||||||||||||||||
Net cash provided by (used in) financing activities | 2,469.8 | 17,989.7 | 366.4 | 19,500.4 | 19,866.8 | 37,490.1 | (23,425.7 | ) | 16,900.6 | ||||||||||||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | — | — | — | (2.2 | ) | (2.2 | ) | (2.2 | ) | — | (2.2 | ) | |||||||||||||||||||
Net increase in cash and cash equivalents | — | — | 308.6 | 284.5 | 593.1 | 284.5 | — | 593.1 | |||||||||||||||||||||||
Cash and cash equivalents at beginning of period | — | — | — | 135.5 | 135.5 | 135.5 | — | 135.5 | |||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | — | $ | — | $ | 308.6 | $ | 420.0 | $ | 728.6 | $ | 420.0 | $ | — | $ | 728.6 |
Condensed Consolidating Statement of Cash Flows | |||||||||||||||||||||||||||||||
(For the nine months ended September 30, 2015) | Shire plc (Parent Guarantor) | SAIIDAC (Subsidiary Issuer) | Baxalta Inc. (Subsidiary Issuer) | Non-Guarantor Non-Issuer Subsidiaries | Non-Guarantor Subsidiaries of SAIIDAC Notes | Non-Guarantor Subsidiaries of Baxalta Notes | Eliminations | Consolidated | |||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||||||||||||||||||||||
Net cash provided (used in) operating activities | $ | (107.2 | ) | $ | — | $ | — | $ | 1,682.4 | $ | 1,682.4 | $ | 1,682.4 | $ | — | $ | 1,575.2 | ||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||||||||||||||||
Transactions with subsidiaries | (3,570.0 | ) | — | — | (2,543.3 | ) | (2,543.3 | ) | (2,543.3 | ) | 6,113.3 | — | |||||||||||||||||||
Movements in restricted cash | (1.1 | ) | — | — | (46.9 | ) | (46.9 | ) | (46.9 | ) | — | (48.0 | ) | ||||||||||||||||||
Purchases of businesses, net of cash acquired | — | — | — | (5,553.4 | ) | (5,553.4 | ) | (5,553.4 | ) | — | (5,553.4 | ) | |||||||||||||||||||
Purchases of PP&E and non-current investments | — | — | — | (67.3 | ) | (67.3 | ) | (67.3 | ) | — | (67.3 | ) | |||||||||||||||||||
Proceeds from short-term investments | — | — | — | 67.0 | 67.0 | 67.0 | — | 67.0 | |||||||||||||||||||||||
Proceeds from sale of product rights | — | — | — | 14.5 | 14.5 | 14.5 | — | 14.5 | |||||||||||||||||||||||
Proceeds from disposal of non-current investments | — | — | — | 18.5 | 18.5 | 18.5 | — | 18.5 | |||||||||||||||||||||||
Other, net | — | — | — | 2.7 | 2.7 | 2.7 | — | 2.7 | |||||||||||||||||||||||
Net cash provided by (used in) investing activities | (3,571.1 | ) | — | — | (8,108.2 | ) | (8,108.2 | ) | (8,108.2 | ) | 6,113.3 | (5,566.0 | ) | ||||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||||||||||||||||
Proceeds from revolving line of credit, long term and short term borrowings | 3,631.1 | — | — | 19.7 | 19.7 | 19.7 | — | 3,650.8 | |||||||||||||||||||||||
Repayment of revolving line of credit, long term and short term borrowings | (2,486.1 | ) | — | — | — | — | — | — | (2,486.1 | ) | |||||||||||||||||||||
Proceeds from intercompany borrowings | 2,543.3 | — | — | 3,570.0 | 3,570.0 | 3,570.0 | (6,113.3 | ) | — | ||||||||||||||||||||||
Payment of dividend | (5.6 | ) | — | — | (104.6 | ) | (104.6 | ) | (104.6 | ) | — | (110.2 | ) | ||||||||||||||||||
Debt issuance costs | (3.3 | ) | — | — | — | — | — | — | (3.3 | ) | |||||||||||||||||||||
Other, net | (1.1 | ) | — | — | 4.8 | 4.8 | 4.8 | — | 3.7 | ||||||||||||||||||||||
Net cash provided by (used in) financing activities | 3,678.3 | — | — | 3,489.9 | 3,489.9 | 3,489.9 | (6,113.3 | ) | 1,054.9 | ||||||||||||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | — | — | — | (1.6 | ) | (1.6 | ) | (1.6 | ) | — | (1.6 | ) | |||||||||||||||||||
Net decrease in cash and cash equivalents | — | — | — | (2,937.5 | ) | (2,937.5 | ) | (2,937.5 | ) | — | (2,937.5 | ) | |||||||||||||||||||
Cash and cash equivalents at beginning of period | — | — | — | 2,982.4 | 2,982.4 | 2,982.4 | — | 2,982.4 | |||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | — | $ | — | $ | — | $ | 44.9 | $ | 44.9 | $ | 44.9 | $ | — | $ | 44.9 |
Combination with Baxalta
Baxalta’s Business
Overview
Baxalta develops, manufactures and markets a diverse portfolio of treatments for hemophilia and other bleeding disorders, immune deficiencies, alpha-1 antitrypsin deficiency, burns and shock, and other chronic and acute medical conditions, as well as oncology treatments for acute lymphoblastic leukemia. Baxalta has also invested in emerging technology platforms, including gene therapy and biosimilars.
Baxalta’s Separation from Baxter International Inc.
Baxalta was incorporated in Delaware on September 8, 2014 in connection with the separation of Baxter International, Inc.’s biopharmaceuticals business from its diversified medical products businesses. The separation from Baxter International, Inc. (“Baxter”) was completed on July 1, 2015 pursuant to which Baxalta became an independent public company as a result of a pro rata distribution by Baxter of 80.5% of Baxalta’s common stock to Baxter’s shareholders. Baxter retained an approximate 19.5% ownership stake in Baxalta immediately following the distribution. Baxalta common stock began trading “regular way” under the ticker symbol “BXLT” on the New York Stock Exchange on July 1, 2015. Prior to Shire’s acquisition of Baxalta, Baxter had disposed of all remaining shares of Baxalta’s common stock retained in connection with the separation.
Acquired Products
Baxalta’s business consists of a portfolio of products serving patient needs in a variety of ways. Baxalta’s therapies — by reference to five categories: Hemophilia, Inhibitor Therapies, Immunoglobulin Therapies, BioTherapeutics and Oncology— are further described below, together with selected details for therapies within each category.
Hemophilia. Hemophilia therapies include:
administration of HEMOFIL M provides an increase in plasma levels of AHF and can temporarily correct the coagulation defect of patients with hemophilia A.
Inhibitor Therapies. Inhibitor Therapies products are:
Immunoglobulin Therapies. Immunoglobulin Therapies products include:
associated with B-cell CLL, treatment of adult patients with chronic idiopathic thrombocytopenic purpura (ITP) to increase platelet count and to prevent and/or control bleeding, and prevention of coronary artery aneurysms associated with Kawasaki Syndrome in pediatric patients.
BioTherapeutics. BioTherapeutics products include:
Oncology. Baxalta acquired the ONCASPAR (pegaspargase) leukemia product portfolio from Sigma-Tau Finanziaria S.p.A.
Agreements with Baxter
Prior to the separation, Baxalta and Baxter entered into several agreements to effect the separation and provide a framework for Baxalta’s relationship with Baxter after the separation. These agreements, some of which are summarized below, govern the relationship between Baxter and Baxalta subsequent to the completion of the separation and provide for the separation of the assets, employees, liabilities and obligations (including investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after the separation.
In addition to the foregoing, Baxalta and Baxter also entered into other agreements prior to the separation, including, a shareholder’s and registration rights agreement, wherein Baxalta agreed, upon the request of Baxter, to use reasonable best efforts to effect a registration under applicable federal and state securities laws of any shares of Baxalta’s common stock retained by Baxter.
Letter Agreement with Baxter and Shire
On January 11, 2016, Baxter, Shire and Baxalta entered into a letter agreement (“Letter Agreement”) in connection with the merger, which, among other things, addresses certain aspects of the tax matters agreement and modified certain aspects of the shareholder’s and registration rights agreement.
Under the Letter Agreement, from and after the closing of the merger, Baxalta agreed to indemnify, and Shire agreed to guarantee such indemnity to, Baxter and each of its affiliates and each of their respective officers, directors and employees against certain tax-related losses resulting from the merger (other than losses resulting from any disposition of Baxalta common stock by Baxter (i) that are not attributable to the merger and (ii) other than in the initial distribution on July 1, 2015 and certain debt-for-equity exchanges, exchange offers, contribution of Baxalta shares to Baxter’s U.S. pension fund or a dividend distribution to Baxter’s stockholders (in each case as contemplated by the Letter Agreement)).
In addition, under the Letter Agreement, Shire agreed to cooperate with Baxalta and Baxter to enable Baxalta to comply with its obligations under the shareholder’s and registration rights agreement and to use its reasonable best efforts to facilitate Baxter’s disposition of Baxalta common stock in certain SEC-registered offerings. Each of Shire and Baxalta agreed in the Letter Agreement not to hold their respective stockholder meetings to approve, and not to consummate, the merger before the earliest of (a) the date that Baxter completed marketing periods for two debt-for-equity exchanges and one equity exchange offer with respect to its Baxalta common stock, (b) the date on which Baxter disposed of all its Baxalta common stock, or (c) June 17, 2016 (subject to tolling or extension (generally to no later than June 25, 2016) under certain circumstances). Prior to Shire’s acquisition of Baxalta, Baxter had disposed of all remaining shares of Baxalta’s common stock retained in connection with the separation.
Properties
At the time of the acquisition by Shire, Baxalta’s global headquarters was located in a 260,000 square foot facility in Bannockburn, Illinois. Baxalta manufactures its products in more than ten manufacturing facilities around the world. Baxalta owns or has long-term leases on all of its manufacturing facilities. Baxalta’s principal manufacturing facilities are listed below.
In 2015, Baxalta opened its global innovation center based in Cambridge, Massachusetts, serving as the headquarters for Research & Development, Oncology, Biosimilars and Business Development.
Baxalta’s facility in Hoover, Alabama is a critical facility for the testing of human plasma, including plasma collected by its BioLife subsidiary (as more fully described in the section titled “—Sources and Availability of Raw Materials” below for use in Baxalta’s products.
Sources and Availability of Raw Materials
Human plasma is a critical raw material in Baxalta’s business. Baxalta owns and operates plasma collection facilities in the United States and Austria through its wholly owned subsidiary BioLife Plasma Services L.P. (“BioLife”). BioLife operates and maintains more than 80 state-of-the-art plasma collection facilities in 24 states throughoutof the United States and at seven locations in Austria. Baxalta also maintains relationships with other plasma suppliers to ensure that it retains the flexibility to meet market demand for its plasma-based therapies, including through its 10-year (expiring July 2022 unless it renewsCompany, issued senior notes pursuant to its terms) contract manufacturing agreementa public offering with Sanquin Blood Supply Foundationa total aggregate principal value of $12.1 billion, guaranteed by Shire plc. SAIIDAC used the net proceeds to fully repay amounts outstanding under the January 2016 Facilities Agreement, which was used to finance the cash portion of the Netherlands.
Competition
Baxalta faces substantial competition from pharmaceutical, biotechnology and other companiesCompany’s acquisition of all sizes, in the United States and internationally, and such competitors continue to expand their manufacturing capacity and sales and marketing channels. CompetitionBaxalta. Below is primarily focused on cost-effectiveness, price, service, product effectiveness and quality, patient convenience and technological innovation. There has been increasing consolidation in Baxalta’s customer base, which continues to result in pricing and market pressures.
The principal sources of competition for Baxalta’s principal products globally are as follows:
Additionally, for eacha summary of the principal products listed above, there are additional competitive products or alternative therapy regimens available on a more limited geographic basis throughout the world.
Employees
Baxalta employed approximately 17,000 personsSAIIDAC Notes as of December 31, 2015. Outside of the United States, some of Baxalta’s employees are represented by unions or works councils.
OTHER SECOND QUARTER 2016 DEVELOPMENTS
September 30, 2016:
On June 14, 2016, Shire announced it agreed to license global rights to all indications for SHP647 from Pfizer Inc. SHP647 is an investigational biologic being evaluated$3.3 billion 1.900% Senior Notes due 2019;
such termination will be effective upon expiration of the applicable termination notice period. These collaborations were acquired through the Baxalta acquisition.
On October 18, 2016, Shire announced that the European Commission granted Marketing Authorization to ONIVYDE (pegylated liposomal irinotecan hydrochloride trihydrate), |
HYQVIA for the treatment of primarymetastatic adenocarcinoma of the pancreas, in combination with 5-fluorouracil and certain secondary immunodeficiencies
XIIDRAleucovorin, in adult patients who have progressed following gemcitabine-based therapy. This approval is accompanied by an Orphan Drug Designation for ONIVYDE.
REVESTIVEmoderate to severe binge eating disorder ("BED")
GLASSIAulcerative colitis
Pipeline
SHP626 for the treatment of Nonalcoholic Steatohepatitis (“NASH”) with liver fibrosis
SHP607 forthe prevention of certain complications of prematurity
SHP465 for the treatment of ADHD in adults
SHP625 for the treatment of cholestatic liver disease
SHP621 for the treatment of eosinophilic esophagitis (“EoE”)
ulcerative colitis.
On October 5, 2016, |
PIPELINE
Among the promising products, therapies and projects in Shire’s pipeline are the following, grouped by development status as of June 30, 2016:
Products in Registration
Neuroscience
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 has been completed and submission of the INTUNIV application for Marketing Authorisation Application in Japan was made on January 27, 2016.
Internal Medicine
NATPAR/NATPARA for the treatment of HPT
NATPAR is currently under review in Europe as an adjunct to calcium and vitamin D to control hypocalcemia in patients with HPT. NATPARA was approved by the FDA in January 2015.
Hematology
BAX 855 ADYNOVATE/ADYNOVIfor the treatment of hemophilia A
BAX 855 is a PEGylated rFVIII, considered as lead candidate of the rFVIII EHL (extended half-life) program. BAX 855 is considered a next-generation ADVATE molecule with improved pharmacokinetic properties, to provide Hemophilia A patients on prophylaxis another option built on the proven ADVATE molecule. Phase 2/3has been completed, followed by approval and first product launch in the U.S. (fourth quarter of 2015) and then Japan (second quarter of 2016). An application was filed with theEuropean Medicines Agency (“EMA”) in March 2016 and the Company received feedback from the EMA in July 2016. Shire is in the process of preparing responses to these questions.
VONVENDI for the treatment of von Willebrand disease
VONVENDI is the first recombinant therapy providing a pure von Willebrand disease (“VWD”) factor with customized dosing. Baxalta received U.S. regulatory approval in December 2015 and anticipates the product will be broadly available in the U.S. in late 2016. A surgery clinical trial is ongoing which is required for filing in Europe.
Phase 3 and Phase 3-ready
Genetic Diseases
SHP643 for the treatment of HAE
SHP643 is a Phase 3 novel long-acting highly potent human monoclonal antibody inhibitor of pKal. SHP643 has received Fast Track, Breakthrough Therapy, and Orphan Drug Designations by the FDA and received Orphan Drug Designation in the EU. Shire initiated a Phase 3 clinical trial in the first quarter of 2016.
FIRAZYR (icatibant) for the treatment of acute attacks of HAE in Japan
The final results of the Phase 3 Japan study demonstrated that the efficacy and safety profile of FIRAZYR for the acute treatment of angioedema attacks was similar between Japanese patients and those patients who participated in Shire’s previously conducted Phase 3 program. Shire is planning to file a JNDA in 2017 for the indication, treatment of acute attacks of HAE.
SHP609 for the treatment of Hunter syndrome with CNS symptoms
SHP609 is in development as an enzyme replacement therapy (“ERT”) delivered intrathecally for the treatment of Hunter syndrome patients with early cognitive impairment. Hunter syndrome is a Lysosomal Storage Disorder. In December 2014 the FDA granted SHP609 Fast Track Designation. In addition, this product has been granted Orphan Drug Designation in the U.S. The Company has initiated a pivotal Phase 2/3 clinical trial which is currently enrolling and an extension study is ongoing.
SHP616 (CINRYZE SC) life cycle management
Shire is pursuing a subcutaneous formulation of CINRYZE for routine prophylaxis against HAE attacks in adolescent and adult patients. An IND was submitted in October 2015, and Shire initiated a Phase 3 study in the first quarter of 2016.
SHP616 (CINRYZE) for routine prophylaxis and treatment of acute attacks in adolescent and adult patients with HAE in Japan
CINRYZE is indicated in the U.S. 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 with inclusion of self-administration in 2016 and the Phase 3 clinical trial is planned to start enrolling patients the second half of 2016.
Neuroscience
SHP465 for the treatment of ADHD in adults
For details about this program, please see Other Second Quarter 2016 Developments, above.
LDX for the treatment of ADHD in Japan
LDX, currently marketed as VYVANSE in the U.S. and ELVANSE in certain countries in the EU, for the treatment of ADHD. Shionogi and Shire will co-develop and sell ADHD products in Japan, including LDX. A Phase 2/3 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.
Internal Medicine
SHP555 (prucalopride; marketed as RESOLOR in the EU) for the treatment of chronic constipation in the US
RESOLOR was approved in 2009 in Europe for use in women for the symptomatic treatment of chronic constipation in whom laxatives fail to provide adequate relief. On June 3, 2015 Shire announced that prucalopride has been approved by the European Commission for useU.S. Patent & Trademark Office’s Patent Trial and Appeal Board issued a decision upholding the validity of U.S. Patent No. 6,773,720, related to LIALDA.
SHP621 Oral Budesonide Suspension (“OBS”), for the treatment of adolescents and adults with EoE
For current developments about this program, please see Other Second Quarter 2016 Developments, above.
OBS is a proprietary viscous oral formulation of budesonide that is designed to coat the esophagus where the drug can act locally. The FDA has granted Orphan Drug Designation to OBS for the treatment of patients with EoE. In addition, on May 31, 2016, the FDA granted SHP621 Breakthrough Therapy Designation. Shire initiated a Phase 3 program for the treatment of adolescents and adults with EoE in the first quarter of 2016.
SHP633 (REVESTIVE) for the treatment of short bowel syndrome (“SBS”) in Japan
REVESTIVE is an approved therapy in the U.S. and Europe to treat adults with SBS who are dependent on parenteral support. A Phase 3 bridging study in adults was initiated in Japan in 2014 and is currently ongoing.
Hematology
OBIZUR (CHAWI SURGERY) forpatients with congenital hemophilia A with inhibitors undergoing surgery
OBIZUR is a recombinant porcine sequence FVIII (rpFVIII), from which major partsAppeals of the B-domain have been deleted (BDD). OBIZUR is sufficiently similar to human FVIII in promoting hemostasis and for monitoring the FVIII levels and different enough in structure to render it less susceptible to inactivation by circulating inhibitory antibodies to human FVIII. Patients with inhibitors are at risk of perioperative bleeding complications, presenting therapeutic challenges in elective or emergency surgery. The CHAWI surgery clinical protocol was submitted to the Medicines and Healthcare Regulatory Agency (UK) in March 2016 and is ongoing.
Immunology
HYQVIA
Federal Circuit. Shire is undertaking efforts to expand indications for HYQVIA, including for the treatment of chronic inflammatory demyelinating polyradiculoneuropathy, a neurological disorder characterized by progressive weakness and impaired sensory function in the legs and arms. A Phase 3 clinical trial is underway.
Oncology
SHP616 (CINRYZE) for the treatment ofAntibody Mediated Rejection
A Phase 2 study for the treatment ofAntibody Mediated Rejection (“AMR”) with SHP616 was completed. Shire has received FDA and EMA feedback and submitted an investigational new drug application (“IND”) in the second quarter of 2015. The FDA granted Fast Track designation for SHP616 in October 2015 and Shire began enrollment in a Phase 3 study for the treatment of acute AMR in the second quarter of 2016.
CALASPARGASE PEGOL
In July 2015, Baxalta acquired the ONCASPAR (pegaspargase) product portfolio from Sigma-Tau Finanziaria S.p.A. Through the acquisition, Baxalta gained the investigational biologic calaspargase pegol, which is Baxalta’s next generation pegylated asparaginase, currently in Phase 3 development.
Biosimilars
BAX 2200
Baxalta established a collaboration with Coherus Biosciences, Inc. (“Coherus”) to develop and commercialize BAX 2200, a biosimilar product candidate for ENBREL® (etanercept), which is indicated for the treatment of autoimmune deficiencies, in Europe, Canada, Brazil and other markets. This is Baxalta’s most advanced biosimilar, and, in January 2016, Baxalta announced that it had met its primary end point in its Phase 3 clinical trials for rheumatoid arthritis. There is also a Phase 3 clinical trial ongoing for psoriasis and, in early stage clinical trials, Coherus has demonstrated pharmacokinetic equivalence versus the innovator molecule.
BAX 2923
Baxalta is collaborating with Momenta Pharmaceuticals, Inc. (“Momenta”) on the development and commercialization of BAX 2923, a biosimilar product candidate for HUMIRA® (adalimumab). In December 2015, Baxalta announced that BAX 2923 met the primary endpoint in a study evaluating the pharmacokinetics of BAX 2923 compared to both U.S. and EU sourced HUMIRA® reference products in healthy volunteers. Separately, in October 2015, Baxalta initiated a Phase 3 pivotal clinical trial for BAX 2923 in patients with chronic plaque psoriasis.
Phase 2
Genetic Diseases
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 Company initiated a Phase 1/2 clinical trial in the third quarter of 2010 which has now completed. Shire initiated a Phase 2b clinical trial for SHP610, which is designed to establish clinical proof of concept. An extension study is ongoing. The product has been granted Orphan Drug Designation in the U.S. and in the EU.
Internal Medicine
SHP647 for the treatment of moderate-to-severe inflammatory bowel disease (IBD)
For current developments about this program, please see Other Second Quarter 2016 Developments, above.
SHP626 for the treatment of NASH with liver fibrosis
For current developments about this program, please see Other Second Quarter 2016 Developments, above.
SHP626 is in development for the treatment of NASH. A U.S. Investigational New Drug application was approved by the FDA in the fourth quarter of 2014, and a Phase 1b multiple dose trial has been completed.
SHP625 for the treatment of cholestatic liver disease
For current developments about this program, please see Other Second Quarter 2016 Developments, above.
Shire is currently conducting Phase 2 studies in the following indications: Alagille Syndrome (“ALGS”) and Progressive Familial Intrahepatic Cholestasis (“PFIC”). This product has been granted Orphan Drug Designation both in the U.S. and EU.
Ophthalmics
SHP607 for the prevention of certain complications of prematurity
For current developments about this program, please see Other Second Quarter 2016 Developments, above.
SHP640 for the treatment of infectious conjunctivitis
SHP640, a therapy in late-stage development for the treatment of infectious conjunctivitis, an ocular surface condition commonly referred to as pink eye. Shire met with the FDA in the second quarter of 2016 to discuss a program in bacterial conjunctivitis, and has adapted the program plan based on FDA feedback. The program in adenoviral conjunctivitis was previously agreed with the FDA in 2015. Based on the feedback from the FDA meeting, Shire intends to initiate the Phase 3 program in the first quarter of 2017.
Immunology
GLASSIA – Alpha-1 Antitrypsin for the treatment of acute Graft-versus-Host Disease (aGvHD)
GLASSIA, a highly purified liquid form of alpha-1 anti-trypsin (A1P1) derived from human plasma, is being evaluated for the treatment of acute Graft-versus-Host Disease (aGvHD) with lower gastrointestinal (GI) involvement as an add-on therapy to steroids in the first-line treatment. The Phase 2/3 study is on schedule to initiate in the fourth quarter of 2016.
SM101 for the treatment of systemic lupus erythematosus
SM101 is an investigational immunoregulatory treatment that has completed Phase 2a studies for systemic lupus erythematosus, a disorder in which the immune system attacks healthy tissue.
Oncology
SHP620 (maribavir) for the treatment of CMV infection in transplant patients
Shire has completed two Phase 2 studies in transplant recipients. This product has been granted Orphan Drug Designation in both the U.S. 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 and additional FDA feedback in November, Shire plans to progress the program into Phase 3 in the second half of 2016.
Imalumab (BAX 069) for the treatment of colorectal cancer
BAX 069 is a monoclonal antibody with a novel mode of action for the treatment of solid tumors, targeting the oxidized form of cytokine macrophage migration inhibitor factor. BAX 069 is currently in Phase 2 clinical trials (colorectal cancer and malignant ascites).Imalumab is a First in Class fully Human anti-oxMIF antibody for the treatment of solid and potentially liquid tumors with favorable safety profile found in Phase 1 solid tumors trial. Imalumab mCRC 3rd Lineproof of concept trial opened May 2015; interim read-out planned in the third quarter of 2016 to expedite potential entry into a Phase 3 clinical trial.
ONIVYDE (nal-IRI)
ONIVYDE (nal-IRI) has shown robust efficacy with manageable toxicity in post-gemcitabine metastatic pancreatic cancer patients. ONIVYDE is approved in the U.S. and in Taiwan since October 2015. A positive opinion recommending the marketing authorization for its use in adult patients has been received in the EU with potential for approval in the second half of 2016.
Phase 1
Genetic Diseases
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 U.S. and the EU. The Company initiated a Phase 1/2 clinical trial in the third quarter of 2012. The trial is currently ongoing, but top line interim results were available in late April 2015. Based upon this data, SHP611 appeared to be well tolerated at all doses. Shire is currently enrolling an additional cohort at the highest dose and anticipates the data readout from this cohort to be available in early 2017, which will inform the future strategy for the program.
SHP622 for the treatment of FA
SHP622 is in development for the treatment of Friedreich’s Ataxia (“FA”). Phase 1 studies in healthy adults were completed in 2010. The drug was found to be generally well tolerated, and the pharmacokinetics revealedbelieves that the drug was rapidly absorbedproposed Zydus product infringes the ‘720 patent and distributed in the body after oral administration. A Phase 1b trial to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of SHP622 in adults with FA has been completed. SHP622 was generally safe and well tolerated when administered as single and multiple PO doses. Shire will continue to analyze these results and determine an optimal path forward for this program.
SHP623 (rc1-INH) for neuromyelitis optica (“NMO”)
rc1-INH is a recombinant C1 inhibitor for the prophylactic treatment of NMO, a type of inflammatory demyelinating disease. The treatment was previously being developed as SHP623 for the prophylactic treatment of HAE. Shire initiated a Phase 1 first-in-human study of SHP623 in the first quarter of 2016 and upon completion of this study it will be developed for the treatment of NMO.
SHP631 for the treatment of both the CNS and somatic manifestations in patients with MPS II
Shire has a worldwide licensing and collaboration agreement with ArmaGen for SHP631. 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 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. In July 2016, ArmaGen announced the presentation of data from the first cohort of four adult patients. The data have supported a recommendation by an independent Data Monitoring committee to proceed to the study’s second cohort.
Hematology
SHP826for the treatment of hemophilia A
SHP826 is an investigational, extended half-life rFVIII treatment targeting weekly dosing for hemophilia A patients. The Phase 1 study of SHP826 has commenced.
BAX 930 (ADAMTS13) for the acute treatment and long-term prophylaxis of hereditary thrombotic thrombocytopenic purpura (hTTP)
BAX 930 is a recombinant human ADAMTS13 (rADAMTS13) protein for the acute treatment and long-term prophylaxis of hereditary thrombotic thrombocytopenic purpura (hTTP), a rare, ultra-orphan condition.BAX 930 will be assessed as a replacement therapy for hTTP. Phase 1/2 has been completed, and Phase 3 planning has been initiated.
• | Total product sales were up |
([1]) Following the launch of XIIDRA in August 2016, the Opthalmology franchise contributed sales of $14 million.
Total revenues
The following table provides an analysis of the Company’s total revenues by source:
3 Months ended June 30, | 6 Months ended June 30, | |||||||||||||||||||||||||||||||
2016 | 2015 | change | Non GAAP CER growth | 2016 | 2015 | change | Non GAAP CER growth | |||||||||||||||||||||||||
(in millions) | % | % | (in millions) | % | % | |||||||||||||||||||||||||||
Product sales | $ | 2,322.1 | $ | 1,476.2 | +57 | +58 | $ | 3,949.4 | $ | 2,899.4 | +36 | +38 | ||||||||||||||||||||
Royalties and other revenues | 107.0 | 81.4 | +31 | +30 | 189.0 | 146.6 | +29 | +28 | ||||||||||||||||||||||||
Total | $ | 2,429.1 | $ | 1,557.6 | +56 | +57 | $ | 4,138.4 | $ | 3,046.0 | +36 | +37 |
Product revenues
3 Months ended June 30, | 6 Months ended June 30, | |||||||||||||||||||||||||||||||
Net product sales: | 2016 | 2015 | Product sales growth | Non GAAP CER growth % | 2016 | 2015 | Product sales growth % | Non GAAP CER growth % | ||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||
Product sales: | ||||||||||||||||||||||||||||||||
CINRYZE | $ | 173.0 | $ | 138.8 | +25 | +25 | $ | 337.2 | $ | 286.9 | +18 | +18 | ||||||||||||||||||||
ELAPRASE | 154.0 | 146.5 | +5 | +8 | 277.6 | 271.5 | +2 | +6 | ||||||||||||||||||||||||
FIRAZYR | 136.7 | 104.1 | +31 | +31 | 265.0 | 196.6 | +35 | +35 | ||||||||||||||||||||||||
REPLAGAL | 118.4 | 116.9 | +1 | +1 | 221.6 | 214.4 | +3 | +6 | ||||||||||||||||||||||||
VPRIV | 88.0 | 84.7 | +4 | +4 | 171.6 | 171.1 | — | +2 | ||||||||||||||||||||||||
KALBITOR | 17.7 | — | n/a | n/a | 28.1 | — | n/a | n/a | ||||||||||||||||||||||||
Genetic Diseases total | 687.8 | 591.0 | +16 | +17 | 1,301.1 | 1,140.5 | +14 | +16 | ||||||||||||||||||||||||
VYVANSE | 517.7 | 424.8 | +22 | +22 | 1,026.9 | 841.6 | +22 | +23 | ||||||||||||||||||||||||
ADDERALL XR | 101.8 | 86.0 | +18 | +18 | 200.6 | 181.7 | +10 | +11 | ||||||||||||||||||||||||
Other Neuroscience | 35.7 | 21.9 | +63 | +64 | 57.8 | 52.4 | +10 | +13 | ||||||||||||||||||||||||
Neuroscience total | 655.2 | 532.7 | +23 | +23 | 1,285.3 | 1,075.7 | +19 | +20 | ||||||||||||||||||||||||
LIALDA/MEZAVANT | 193.7 | 157.9 | +23 | +23 | 361.7 | 306.4 | +18 | +19 | ||||||||||||||||||||||||
PENTASA | 72.9 | 66.3 | +10 | +10 | 136.9 | 145.0 | -6 | -6 | ||||||||||||||||||||||||
GATTEX/REVESTIVE | 44.5 | 37.3 | +19 | +19 | 96.2 | 52.2 | +84 | +85 | ||||||||||||||||||||||||
NATPARA | 19.9 | 5.9 | +237 | +237 | 35.5 | 5.9 | +502 | +502 | ||||||||||||||||||||||||
Other Internal Medicine | 88.7 | 85.1 | +4 | +4 | 173.3 | 173.7 | — | +2 | ||||||||||||||||||||||||
Internal Medicine total | 419.7 | 352.5 | +19 | +19 | 803.6 | 683.2 | +18 | +18 | ||||||||||||||||||||||||
HEMOPHILIA | 275.6 | — | n/a | n/a | 275.6 | — | n/a | n/a | ||||||||||||||||||||||||
INHIBITOR THERAPIES | 74.0 | — | n/a | n/a | 74.0 | — | n/a | n/a | ||||||||||||||||||||||||
Hematology total | 349.6 | — | n/a | n/a | 349.6 | — | n/a | n/a | ||||||||||||||||||||||||
IMMUNOGLOBULIN THERAPIES | 138.2 | — | n/a | n/a | 138.2 | — | n/a | n/a | ||||||||||||||||||||||||
BIO THERAPEUTICS | 51.3 | — | n/a | n/a | 51.3 | — | n/a | n/a | ||||||||||||||||||||||||
Immunology total | 189.5 | — | n/a | n/a | 189.5 | — | n/a | n/a | ||||||||||||||||||||||||
Oncology total | 20.3 | — | n/a | n/a | 20.3 | — | n/a | n/a | ||||||||||||||||||||||||
Total product sales | $ | 2,322.1 | $ | 1,476.2 | +57 | +58 | $ | 3,949.4 | $ | 2,899.4 | +36 | +38 |
Genetic Diseases
Genetic Diseases product sales for the three and six months ended June 30, 2016 increased 16% and 14%, respectively (up 17% and 16%, respectively, on a Non GAAP CER basis) compared to the same periods in 2015.
The increases were primarily driven by increased demand for our Hereditary Angioedema therapies, CINRYZE and FIRAZYR, which were up 25% and 31%, respectively, in the three months ended June 30, 2016 and 18% and 35%, respectively, in the six months ended June 30, 2016 compared to 2015. Both products benefitted from strong growth
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
Net product sales: | 2016 | 2015 | Product sales growth % | Non GAAP CER growth % | 2016 | 2015 | Product sales growth % | Non GAAP CER growth % | |||||||||||||
(in millions, except percentages) | |||||||||||||||||||||
Product sales: | |||||||||||||||||||||
HEMOPHILIA | $ | 702.4 | $ | — | n/a | n/a | $ | 978.0 | $ | — | n/a | n/a | |||||||||
INHIBITOR THERAPIES | 181.7 | — | n/a | n/a | 255.7 | — | n/a | n/a | |||||||||||||
Hematology total | 884.1 | — | n/a | n/a | 1,233.7 | — | n/a | n/a | |||||||||||||
CINRYZE | 165.4 | 187.5 | (12 | )% | (12 | )% | 502.6 | 474.4 | +6 | % | +6 | % | |||||||||
ELAPRASE | 146.7 | 134.0 | +9 | % | +11 | % | 424.3 | 405.5 | +5 | % | +7 | % | |||||||||
FIRAZYR | 146.3 | 123.2 | +19 | % | +19 | % | 411.3 | 319.8 | +29 | % | +29 | % | |||||||||
REPLAGAL | 118.9 | 111.1 | +7 | % | +7 | % | 340.5 | 325.5 | +5 | % | +6 | % | |||||||||
VPRIV | 87.7 | 85.1 | +3 | % | +4 | % | 259.3 | 256.2 | +1 | % | +3 | % | |||||||||
KALBITOR | 11.1 | — | n/a | n/a | 39.2 | — | n/a | n/a | |||||||||||||
Genetic Diseases total | 676.1 | 640.9 | +5 | % | +6 | % | 1,977.2 | 1,781.4 | +11 | % | +12 | % | |||||||||
VYVANSE | 512.6 | 427.3 | +20 | % | +20 | % | 1,539.5 | 1,268.9 | +21 | % | +22 | % | |||||||||
ADDERALL XR | 80.5 | 78.0 | +3 | % | +3 | % | 281.1 | 259.7 | +8 | % | +9 | % | |||||||||
Other Neuroscience | 23.4 | 29.5 | (21 | )% | (18 | )% | 81.2 | 81.9 | (1 | )% | +2 | % | |||||||||
Neuroscience total | 616.5 | 534.8 | +15 | % | +16 | % | 1,901.8 | 1,610.5 | +18 | % | +19 | % | |||||||||
IMMUNOGLOBULIN THERAPIES | 472.5 | — | n/a | n/a | 610.7 | — | n/a | n/a | |||||||||||||
BIO THERAPEUTICS | 134.0 | — | n/a | n/a | 185.3 | — | n/a | n/a | |||||||||||||
Immunology total | 606.5 | — | n/a | n/a | 796.0 | — | n/a | n/a | |||||||||||||
LIALDA/MEZAVANT | 208.6 | 176.6 | +18 | % | +18 | % | 570.3 | 483.0 | +18 | % | +19 | % | |||||||||
PENTASA | 85.4 | 87.7 | (3 | )% | (3 | )% | 222.3 | 232.7 | (4 | )% | (4 | )% | |||||||||
GATTEX/REVESTIVE | 58.1 | 43.0 | +35 | % | +36 | % | 154.3 | 95.2 | +62 | % | +63 | % | |||||||||
NATPARA | 23.3 | 6.9 | +238 | % | +238 | % | 58.8 | 12.8 | +359 | % | +359 | % | |||||||||
Other Internal Medicine | 87.3 | 86.9 | — | % | +1 | % | 260.6 | 260.6 | — | +2 | % | ||||||||||
Internal Medicine total | 462.7 | 401.1 | +15 | % | +16 | % | 1,266.3 | 1,084.3 | +17 | % | +17 | % | |||||||||
Oncology total | 55.4 | — | n/a | n/a | 75.7 | — | n/a | n/a | |||||||||||||
Opthalmology Total | 14.1 | — | n/a | n/a | 14.1 | — | n/a | n/a | |||||||||||||
Total product sales | $ | 3,315.4 | $ | 1,576.8 | +110 | % | +111 | % | $ | 7,264.8 | $ | 4,476.2 | +62 | % | +63 | % |
in the number of patients on therapy, higher utilization per patient in the three and six months ended June 30, 2016 and the impact of pricing actions taken since the second quarter of 2015.
Neuroscience
Neuroscience product sales for the three and six months ended June 30, 2016 increased 23% and 19%, respectively, compared to the same periods in 2015 with growth primarily driven by VYVANSE.
VYVANSE sales increased 22% in both the three and six months ended June 30, 2016 compared to the same periods in 2015. The increases were due to year-over-year prescription growth in the U.S., the benefit of price increases taken since the second quarter of 2015 and, to a lesser extent, growth in our international markets.
ADDERALL XR sales increased 18% and 10% in the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. The increases were due to increased prescription demand and lower sales deductions as a percentage of product sales, partially offset in the three months ended June 30, 2016, by destocking versus stocking during the same period of the prior year.
Internal Medicine
Internal Medicine product sales for the three and six months ended June 30, 2016 increased 19% and 18%, respectively, compared to the same periods in 2015, primarily due to continued growth in our gastro-intestinal products.
LIALDA/MEZAVANT sales increased 23% and 18% for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. The increases were due to the impact of a price increase taken since the second quarter of 2015, increases in prescription demand, resulting in a market share of 39% as of June 30, 2016, and to a lesser extent, the impact of stocking in the three and six months ended June 30, 2016 versus destocking in the same periods in 2015.
GATTEX/REVESTIVE and NATPARA, which were acquired with NPS in the first quarter of 2015, continued to perform well with sales up 19% and 237%, respectively, for the three months ended June 30, 2016 and 84% and 502%, respectively, for the six months ended June 30, 2016 compared to the same periods in 2015. GATTEX/REVESTIVE sales were up due to an increase in the number of patients on therapy, partially offset by destocking in the three and six months ended June 30, 2016. NATPARA was launched in April 2015.
The amount shown for the nine month period represents sales since the Baxalta acquisition only.
The amount shown for the nine month period represents sales since the Baxalta acquisition only.
3 Months ended | 6 Months ended | |||||||||||||||||||||||||||||||
2016 | 2015 | Change | Non GAAP CER growth | 2016 | 2015 | Change | Non GAAP CER growth | |||||||||||||||||||||||||
(in millions, except percentages) | % | % | % | % | ||||||||||||||||||||||||||||
SENSIPAR Royalties | $ | 35.6 | $ | 34.8 | +2 | +2 | $ | 73.5 | $ | 45.2 | +63 | +63 | ||||||||||||||||||||
3TC and ZEFFIX Royalties | 12.1 | 10.5 | +15 | +16 | 27.1 | 18.0 | +51 | +51 | ||||||||||||||||||||||||
FOSRENOL Royalties | 11.4 | 10.8 | +6 | -4 | 20.6 | 19.2 | +7 | +2 | ||||||||||||||||||||||||
ADDERALL XR Royalties | 5.2 | 6.6 | -21 | -21 | 11.0 | 15.1 | -27 | -27 | ||||||||||||||||||||||||
Other Royalties and Revenues | 42.7 | 18.7 | +128 | +126 | 56.8 | 49.1 | +16 | +15 | ||||||||||||||||||||||||
Total Royalties and Other Revenues | $ | 107.0 | $ | 81.4 | +31 | +30 | $ | 189.0 | $ | 146.6 | +29 | +28 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||
(in millions, except percentages) | 2016 | 2015 | Change % | Non GAAP CER growth % | 2016 | 2015 | Change % | Non GAAP CER growth % | |||||||||||||||||||
SENSIPAR Royalties | $ | 38.7 | $ | 34.8 | +11 | % | +11 | % | $ | 112.2 | $ | 80.0 | +40 | % | +40 | % | |||||||||||
3TC and ZEFFIX Royalties | 16.2 | 11.9 | +36 | % | +36 | % | 43.3 | 29.9 | +45 | % | +45 | % | |||||||||||||||
FOSRENOL Royalties | 13.7 | 13.2 | +4 | % | (12 | )% | 34.3 | 32.4 | +6 | % | (4 | )% | |||||||||||||||
ADDERALL XR Royalties | 4.7 | 7.1 | (34 | )% | (33 | )% | 15.7 | 22.2 | (29 | )% | (29 | )% | |||||||||||||||
Other Royalties and Revenues | 63.4 | 11.2 | +466 | % | +462 | % | 120.2 | 60.3 | +99 | % | +98 | % | |||||||||||||||
Total Royalties and Other Revenues | $ | 136.7 | $ | 78.2 | +75 | % | +72 | % | $ | 325.7 | $ | 224.8 | +45 | % | +43 | % |
acquisition date.
For the three and sixnine months ended JuneSeptember 30, 2016, SG&A included depreciation of $19.7$29.6 million and $39.8$69.4 million, respectively (2015: $17.9$23.6 million and $35.7$53.5 million, respectively).
Reorganization costs
For the three and six months ended June 30, 2016, Shire recorded reorganization costs of $11.0 million and $14.3 million, respectively (2015: $13.3 million and $28.5 million, respectively), primarily related to the closure of the Basingstoke office and the relocation of roles from Pennsylvania to Massachusetts.
Integration and acquisition costs
For the three and six months ended June 30, 2016, Shire recorded integration and acquisition costs of $362.8 million and $453.9 million, respectively, primarily related to the Baxalta and Dyax transactions, slightly offset by changes in the fair value of contingent consideration liabilities.
For the three and six months ended June 30, 2015, Shire recorded a net credit for integration and acquisition costs of $212.4 million and $136.7 million, respectively, comprising costs primarily related to the acquisition and integration of NPS of $45.7 million and $119.0 million, respectively offset by a net credits of $258.1 million and $255.7 million, respectively, relating to the change in fair values of contingent consideration liabilities primarily relating to SHP625 (acquired with Lumena) and SHP608 (acquired with Lotus Tissue Repair).
Interest expense
respectively.
The
and was 61 days for legacy Baxalta.
Dyax, including fair value step-up of these assets.
Notes.
In
In connection with the acquisition of Baxalta, Shire has assumed senior notes issued by Baxalta totaling $5.0 billion and has assumed $335.5 million of capital lease obligations.
option.
June 30, | December 31, | |||||||
2016 | 2015 | |||||||
(in millions) | ||||||||
Cash and cash equivalents1 | $ | 693.4 | $ | 135.5 | ||||
Long term borrowings | (21,312.1 | ) | (69.9 | ) | ||||
Short term borrowings | (2,715.2 | ) | (1,511.5 | ) | ||||
Other debt | (343.6 | ) | (13.4 | ) | ||||
Total debt | (24,370.9 | ) | (1,594.8 | ) | ||||
Net debt2 | $ | (23,677.5 | ) | $ | (1,459.3 | ) |
(in millions) | September 30, 2016 | December 31, 2015 | |||||
Cash and cash equivalents | $ | 728.6 | $ | 135.5 | |||
Long term borrowings | (20,988.9 | ) | (69.9 | ) | |||
Short term borrowings | (2,737.1 | ) | (1,511.5 | ) | |||
Other debt | (348.6 | ) | (13.4 | ) | |||
Total debt | (24,074.6 | ) | (1,594.8 | ) | |||
Net debt1 | $ | (23,346.0 | ) | $ | (1,459.3 | ) |
Net debt is a Non-GAAP measure. Net debt represents US GAAP cash and cash equivalents less US GAAP short and long term borrowings and other debt (see above). The Company believes that Net debt 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. |
($75 million).
acquisition, to fully repay the 2013 Facilities Agreement and to fund the dividend payment.
Contractual Obligations assumed from Baxalta
The following presents contractual obligations, excluding accounts payable and accrued liabilities, assumed from Baxalta as of June 30, 2016:
(in millions) | Total | 2016 | 2017-2018 | 2019-2020 | Thereafter | |||||||||||||||
Debt and capital lease obligations | $ | 5,459.1 | $ | 6.7 | $ | 789.2 | $ | 1,036.1 | $ | 3,627.1 | ||||||||||
Interest on debt and capital lease obligations (a) | 2,345.4 | 84.9 | 331.1 | 299.4 | 1,630.0 | |||||||||||||||
Operating leases | 381.9 | 31.1 | 95.7 | 74.7 | 180.4 | |||||||||||||||
Other long-term liabilities (b) | 606.9 | — | 136.2 | 66.3 | 404.4 | |||||||||||||||
Purchase obligations (c) | 2,112.2 | 491.5 | 908.1 | 589.2 | 123.4 | |||||||||||||||
Contractual obligations | $ | 10,905.5 | $ | 614.2 | $ | 2,260.3 | $ | 2,065.7 | $ | 5,965.3 |
The following items assumed from Baxalta have been excluded from the table above:
PART II: ITEM 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 contains a discussion of the Company’s exposure to market and other risks.
The potential change
$1.0 billion at September 30, 2016.
ownedgovernment-owned or government-supported healthcare providers. The Company continues to receive remittances in relation to government-owned or government-supported healthcare providers in the Relevant Countries in the sixnine months ended JuneSeptember 30, 2016, including receipts of $64.9$99.9 million and $58.3$90.7 million in respect of Spanish and Italian receivables, respectively. The Company’s exposure to Greece, both in terms of gross accounts receivable and annual revenues, is not material.
Shire’s combination with Baxalta closed on June 3, 2016. All references to
Therisk factors set forth in the Company’s business and assets are subject to varying degrees of risk and uncertainty. An investor should carefully consider the risks described below, as well as other information contained in this Quarterly Report on Form 10-Q and the Company’s other filings with the SEC. Additional risks not presently known to the Company or that it currently deems immaterial may also adversely affect its business. If any of these events or circumstances occurs, the business, financial condition, results of operations, or prospects could be materially harmed. In that case, the value of the Company’s securities could decline and an investor could lose part or all of his or her investment. In addition, forward-looking statements within the meaning of the federal securities laws that are contained in this Quarterly Report on Form 10-Q or in the Company’s other filings or statements may be subject to the risks described below as well as other risks and uncertainties.
Risks Related to Our Business
The Company’s products may not be a commercial success
The commercial success of the Company’s marketed products and other new products that the Company may launch in the future, will depend on their approval and acceptance by physicians, patients and other key decision-makers, as well as the receipt of marketing approvals in different countries, the time taken to obtain such approvals, the scope of marketing approvals as reflected in the product labels, approval of reimbursement at commercially sustainable prices in those countries where price and reimbursement is negotiated, and safety, efficacy, convenience and cost-effectiveness of the product as compared to competitive products.
The Company’s revenues, financial condition or results of operations may be adversely affected if any or all of the following occur:
If the Company is unable to commercialize its products successfully, there may be a material adverse effect on the Company’s revenues, financial condition or results of operations.
Increased pricing pressures and limits on patient access as a result of governmental regulations and market developments may affect the Company’s future revenues, financial condition and results of operations
The Company’s product revenues are subject to increasing pressures from governmental initiatives to regulate or influence prices and access to customers. Regulations in the United States, the European Union and other jurisdictions mandating price controls or imposing constraints on patients’ ability to purchase Shire’s products significantly impacts its business, and the Company’s financial condition and results of operations could be adversely affected in the future by changes in such regulations, practices or policies.
Regulatory measures that could have a material adverse effect on the Company include the imposition of government-approved drug pricing schedules, the use of drug formularies, prohibitions on direct-to-consumer advertising or drug marketing practices, new regulations or new interpretations of existing or historical regulations relating to governmental drug discount or rebate programs that increase the Company’s drug discount or rebate liability, and caps or limits on the level of reimbursement provided to the Company by governmental reimbursement schemes for its products.
These pressures have also resulted in market developments, such as the consolidation of managed care organizations and private health insurers that have increased the relative bargaining power of institutional drug purchasers and enhanced their ability to negotiate discounts and extract other concessions in exchange for purchasing Shire’s products.
Such regulatory and market developments create downward pressures on the prices at which the Company can offer its products and on the level of reimbursement its treatments receive from health care providers, private health insurers and other organizations, such as health maintenance organizations and managed care organizations.
Additional factors affecting the Company’s ability to obtain and maintain adequate prices and levels of reimbursement for its products include:
Moreover, the cost of treatment for some of the Company’s products is high, particularly those which are used for the treatment of rare diseases. The Company may encounter difficulty in obtaining or maintaining satisfactory pricing and reimbursement for such products. The failure to obtain and maintain pricing and reimbursement at satisfactory levels for its products may adversely affect the Company’s revenues, financial condition or results of operations.
The Company depends on third parties to supply certain inputs and services critical to its operations including certain inputs, services and ingredients critical to its manufacturing processes
The Company relies on third-party suppliers, vendors and outsourcing partners to, among other things, research, develop, manufacture and commercialize its products, to provide certain key ingredients and manufacturing inputs and to manage certain sales, distribution, marketing, information technology, accounting, transaction-processing and other business services. While the Company depends on these third parties for multiple aspects of its product development, manufacturing, commercialization and business activities, it does not control these third parties directly.
As a result, there is a possibility these third parties may not complete activities on schedule or in accordance with the Company’s expectations, and their failure to meet certain contractual, regulatory or other obligations to Shire, or any disruption of Shire’s relationship with these third parties could delay or prevent the development, approval,
manufacture or commercialization of the Company’s products, result in non-compliance with applicable laws and regulations, disrupt Shire’s operations, or result in reputational or other harm to the Company.
This outsourcing risk is of particular concern with respect to third-party suppliers of key manufacturing inputs of Shire’s drug products. Although the Company dual-sources certain key products and/or active ingredients, the Company currently relies on a single source for production of the final drug product for each of ADDERALL XR, CINRYZE, FIRAZYR, FOSRENOL, INTUNIV, LIALDA, PENTASA and NATPARA/NATPAR. In addition, the Company currently relies on a single active ingredient source for each of ELAPRASE, FIRAZYR, FOSRENOL, INTUNIV, REPLAGAL and GATTEX/REVESTIVE and also relies on limited third party sources to provide the donated plasma necessary for the manufacture of CINRYZE.
As a result of the acquisition of Dyax in January 2016, Shire acquired SHP 643 (formerly DX-2930), which currently relies on separate sole sources for both production of the final drug product and supply of the active ingredient for its Phase 3 trial. In addition, one of those drug substance sites has not been approved by the FDA and would need to be approved prior to commercial launch.
Further, as a result of the combination with Baxalta in June 2016, the Company acquired certain products that include components and materials that are provided by a sole supplier. For most of the components and materials for which a sole supplier is used, the Company believes that alternative sources of supply exist and has made a strategic determination to continue use of a sole supplier. In very limited instances, however, including with respect to a single material used in ADVATE, ADYNOVATE and HYQVIA, the Company relies on sole supplier relationships for which no alternatives have currently been identified. The Company mitigates potential supply disruption by holding strategic inventory and by maintaining insurance for certain risks, but there can be no assurance that such measures will be effective.
Any failure by a single-source supplier to provide the Company with the required volumes on time or at all, or to provide products that do not meet regulatory requirements, could lead to significant delays in the production of Shire’s products, increases in operating costs, lost product sales, an interruption of research activities, or the delay of new product launches, all of which could have a material adverse effect on the Company’s revenues, financial condition or results of operations.
Any disruption to the supply chain for any of the Company’s products, or any difficulties or delays in the manufacturing, distribution and sale of its products may result in the Company being unable to continue marketing or developing a product, or may result in the Company being unable to do so on a commercially viable basis for some period of time
A disruption, delay or other difficulties in the manufacturing, distribution and sale of Shire’s products, or in the supply chain of any of its products, may have a material adverse effect on the Company and its revenues, financial condition and results of operations. Examples of such manufacturing and supply chain difficulties include, but are not limited to:
Also, as noted above, the Company has also entered into many agreements with third parties for the provision of goods and services to enable it to manufacture its products. If these third parties are unable to manufacture products, or provide these goods and services, in each case in accordance with its respective contractual obligations, the Company’s ability to manage its manufacturing processes or to operate its business, including to
continue the development or commercialization of its products as planned or on a commercial basis, may be adversely impacted.
The manufacture of the Company’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
Pharmaceutical and device manufacturing sites must be inspected and approved by regulatory agencies such as the FDA and similar agencies in other countries. Active ingredients, excipients and packaging materials used in the manufacturing process must be obtained from sources approved by regulatory agencies.
The development, approval and manufacturing of the Company’s products depend on the ability to procure ingredients and packaging materials from approved sources and for the manufacturing process to be conducted at approved sites. Changes of manufacturer or changes of source of ingredients or packaging materials must generally be approved by the regulatory agencies, which will involve testing and additional inspections to ensure compliance with the applicable regulatory agency’s regulations and standards. The need to qualify a new manufacturer or source of ingredients or packaging materials can take a significant amount of time. Should it become necessary to change a manufacturer or supplier of ingredients or packaging materials, or to qualify an additional supplier, the Company may not be able do so quickly, or at all, which could delay or disrupt the manufacturing process.
U.S.-based manufacturers must be registered with the DEA and similar regulatory authorities in other countries if they handle controlled substances. Certain of the Company’s products, including ADDERALL XR and VYVANSE, contain ingredients which are controlled substances subject to quotas managed by the DEA. As a result, the Company’s procurement and production quotas may not be sufficient to meet commercial demand.
Certain of the Company’s products, including but not limited to CINRYZE, ELAPRASE, REPLAGAL, FEIBA, HYQVIA and GAMMAGARD LIQUID and VPRIV are manufactured using highly complex biological processes. The complexity of the manufacturing results in a number of risks, including the risk of microbial contamination. Additionally, some of the Company’s therapies, including CINRYZE, FEIBA, HYQVIA and GAMMAGARD LIQUID are derived from human plasma, and are therefore subject to the risk of biological contamination inherent in plasma-derived products. For example, the sole manufacturer of CINRYZE has received Form FDA 483 Inspectional Observations, the most recent of which was received in May 2016, and a Warning Letter from the FDA in 2013 identifying issues with respect to the manufacturing process for CINRYZE. Shire continues to work with the manufacturer to promptly respond to the observations and implement corrective actions to the satisfaction of the FDA. Any regulatory interventions, in relation to these, or any other issues, if they occur, may delay or disrupt the manufacture of the Company’s products.
The failure to obtain regulatory approvals promptly or at all and/or regulatory 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, the delay of new product launches or constraints on manufacturing output, all of which could have a material adverse effect on the Company’s revenues, financial condition and results of operations.
The nature of producing plasma-based therapies may prevent Shire from timely responding to market forces and effectively managing its production capacity
The production of plasma-based therapies is a lengthy and complex process, and Shire sources its plasma both internally and externally through suppliers. Efforts to increase the collection of plasma or the production of plasma-based therapies may include the construction and regulatory approval of additional plasma collection facilities and plasma fractionation facilities. In connection with the combination with Baxalta, the Company acquired a yet to be completed state-of-the-art manufacturing facility near Covington, Georgia to support growth of its plasma-based treatments. The Company continues constructing the Covington facility and commercial production at the facility remains scheduled to begin in 2018. The development of such facilities involves a lengthy regulatory process and is highly capital intensive. In addition, access to and transport and use of plasma may be subject to restrictions by governmental agencies both inside and outside the United States. As a result, the Company’s ability to match its collection and production of plasma-based therapies to market demand is imprecise and may result in a failure to meet market demand for its plasma-based therapies or, alternatively, an oversupply of inventory. Failure to meet market demand for Shire’s plasma-based therapies may result in customers transitioning to available competitive products resulting in a loss of market share or customer confidence. In the event of an oversupply, Shire may be forced to lower the prices it charges for some of its plasma-based therapies, close collection and processing facilities, record asset impairment charges or take other action which could have a material adverse effect on the Company’s revenues, financial condition and results of operations.
The Company 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
Products that initially appear promising in research or development may be delayed or fail to reach later stages of development as:
Success in preclinical and early clinical trials does not ensure that late stage clinical trials will be successful. Clinical results are frequently susceptible to varying interpretations that may delay, limit, or prevent regulatory approvals. The length of time necessary to complete clinical trials and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly and may be difficult to predict. Moreover, once an application is submitted, additional data may be sought by regulators or an application may be rejected. The Company has a range of programs in its product pipeline that are in or entering late stage clinical development, including a New Drug Application submitted to the FDA for SHP606 for the treatment of signs and symptoms of adults with DED and SHP643 (formerly DX-2930) for the treatment of HAE, which is in Phase 3 clinical trials. If the Company’s large-scale or late-stage clinical trials for a product are not successful, the Company will not recover its substantial investments in that product.
In addition, even if the products receive regulatory approval, they remain subject to ongoing regulatory requirements, including, for example, obligations to conduct additional clinical trials or other non-clinical testing, changes to the product label (which could impact its marketability and prospects for commercial success), new or revised requirements for manufacturing, written notifications to physicians, or product recalls or withdrawals.
The actions of certain customers could affect the Company’s ability to sell or market products profitably. Fluctuations in buying or distribution patterns by such customers can adversely affect the Company’s revenues, financial conditions or results of operations
A considerable portion of the Company’s product sales are made to major pharmaceutical wholesale distributors, as well as to large pharmacies, in both the U.S. and Europe. For the six monthsquarter ended June 30, 2016, 42% of the Company’s product sales were attributable to three customers in the United States: AmerisourceBergen Drug Corp, McKesson Corp. and Cardinal Health, Inc. In the event of financial failure of any of these customers there could be a material adverse effect on the Company’s revenues, financial condition or results of operations. The Company’s revenues, financial condition or results of operations may also be affected by fluctuations in customer buying or distribution patterns. These fluctuations may result from seasonality, pricing, wholesaler inventory objectives, or other factors. A significant portion of the Company’s revenues for certain products for treatment of rare diseases are concentrated within a small number of customers. Changes in the buying patterns of those customers may have an adverse effect on the Company’s revenues, financial condition or results of operations.
Failure to comply with laws and regulations governing the sales and marketing of its products could materially impact Shire’s revenues and profitability
The Company engages in various marketing, promotional and educational activities pertaining to, as well as the sale of, pharmaceutical products and medical devices in a number of jurisdictions around the world. The promotion, marketing and sale of pharmaceutical products and medical devices is highly regulated and the sales and marketing practices of market participants, such as the Company, have been subject to increasing supervision by governmental authorities, and Shire believes that this trend will continue.
In the United States, the Company’s sales and marketing activities are monitored by a number of regulatory authorities and law enforcement agencies, including the U.S. Department of HHS, the FDA, the U.S. Department of Justice, the SEC and the DEA. These authorities and agencies and their equivalents in countries outside the United States have broad authority to investigate market participants for potential violations of laws relating to the sale, marketing and promotion of pharmaceutical products and medical devices, including the False Claims Act, the Anti-Kickback Statute, the UK Bribery Act of 2010 and the Foreign Corrupt Practices Act, among others, for alleged improper conduct, including corrupt payments to government officials, improper payments to medical professionals, off-label marketing of pharmaceutical products and medical devices, and the submission of false claims for reimbursement by the federal government. Healthcare companies may also be subject to enforcement actions or prosecution for such improper conduct. Any inquiries or investigations into the operations of, or enforcement or other regulatory action against, the Company by such authorities could result in significant defense costs, fines, penalties and injunctive or administrative remedies, distract management to the detriment of the business, result in the exclusion of certain products, or the Company, from government reimbursement programs or subject the Company to regulatory controls or government monitoring of its activities in the future. The Company is also subject to certain ongoing investigations by governmental agencies. For further information, see ITEM 2: Legal Proceedings and Note 20, Legal and other proceedings to the Unaudited Consolidated Financial Statements set forth in this Quarterly Report on Form 10-Q.
The Company’s products and product candidates face substantial competition in the product markets in which it operates
Shire faces substantial competition throughout its business from international and domestic biopharmaceutical companies of all sizes. Competition is primarily focused on cost-effectiveness, price, service, product effectiveness and quality, patient convenience and technological innovation.
Competition may increase further as existing competitors enhance their offerings or additional companies enter Shire’s markets or modify their existing products to compete directly with Shire’s products. If Shire’s competitors respond more quickly to new or emerging technologies and changes in customer requirements, the Company’s products may be rendered obsolete or non-competitive. If Shire’s competitors develop more effective or affordable products, or achieve earlier patent protection or product commercialization than the Company does, its operations will likely be negatively affected. If Shire is forced to reduce its prices due to increased competition, Shire’s business could become less profitable. The Company’s sales could be adversely affected if any of its contracts with customers (including with hospitals, treatment centers and other health care providers, distributors, group purchasing organizations and integrated delivery networks) are terminated due to increased competition or otherwise.
The Company’s patented products are subject to significant competition from generics
In addition to the competition referred to above, Shire faces significant competition from the manufacturers of generic drug products in all of its major markets and in the future may face competition with respect to its biologic and biosimilar products. The introduction of lower-priced generics by the Company’s competitors or their successful efforts in aggressively commercializing and marketing their alternative drug products pose significant challenges to maintaining Shire’s market share, revenues and sales growth.
For example, since 2009, generic versions of ADDERALL XR have been marketed and, since 2014, generic versions of INTUNIV have been marketed in the United States. As a result, product sales of ADDERALL XR and INTUNIV have declined.
Factors which could cause further or more rapid declines in Shire’s product sales include:
Should any of the above developments occur, the resulting generic competition could reduce sales and market share of Shire’s branded products and have a material adverse effect on the Company’s revenues, financial condition or results of operations.
Adverse outcomes in legal matters and other disputes, including the Company’s ability to enforce and defend patents and other intellectual property rights required for its business, could have a material adverse effect on the Company’s revenues, financial condition or results of operations
During the ordinary course of its business the Company may be involved in claims, disputes and litigation with third parties, employees, regulatory agencies, governmental authorities and other parties. The range of matters of a legal nature that might arise is extremely broad but could include, without limitation, intellectual property claims and disputes, product liability claims and disputes, regulatory litigation, contract claims and disputes, employment claims and disputes, and tax or other governmental agency audits and disputes.
Any unfavorable outcome in such matters could adversely impact the Company’s ability to develop or commercialize its products, adversely affect the product sales and profitability of existing products, subject the Company to significant defense costs, fines, penalties, audit findings and injunctive or administrative remedies, distract management to the detriment of the business, result in the exclusion of certain products, or the Company, from government reimbursement programs or subject the Company to regulatory controls or government monitoring of its activities in the future. Any such outcomes could have a material adverse effect on the Company’s revenue, financial condition or results of operations. For further information see ITEM 2: Legal Proceedings and Note 20, Legal and other proceedings to the Unaudited Consolidated Financial Statements set forth in this Quarterly Report on Form 10-Q.
The Company may fail to obtain, maintain, enforce or defend the intellectual property rights required to conduct its business
The Company’s success depends upon its ability and the ability of its partners and licensors to protect their intellectual property rights. Where possible, the Company’s strategy is to register intellectual property rights, such as patents and trademarks. The Company also relies on various trade secrets, unpatented know-how and technological innovations and contractual arrangements with third parties to maintain its competitive position. The failure to obtain, maintain, enforce or defend such intellectual property rights, for any reason, could allow third parties to make competing products or impact the Company’s ability to develop, manufacture and market its own products on a commercially viable basis, or at all, which could have a material adverse effect on the Company’s revenues, financial condition or results of operations.
The Company intends to enforce its patent rights vigorously and believes that its commercial partners, licensors and third party manufacturers intend to enforce vigorously those patent rights they have licensed to the Company. However, the Company’s patent rights, and patent rights that the Company has licensed, may not provide valid patent protection sufficiently broad to prevent any third party from developing, using or commercializing products that are similar or functionally equivalent to the Company’s products or technologies. These patent rights may be challenged, revoked, invalidated, infringed or circumvented by third parties. Laws relating to such rights may in future also be changed or withdrawn.
Additionally, the Company’s products, or the technologies or processes used to formulate or manufacture those products may now, or in the future, infringe the patent rights of third parties. It is also possible that third parties will obtain patent or other proprietary rights that might be necessary or useful for the development, manufacture or sale of the Company’s products. The Company may need to obtain licenses for intellectual property rights from others and may not be able to obtain these licenses on commercially reasonable terms, if at all.
The Company also relies on trade secrets and other un-patented proprietary information, which it generally seeks to protect by confidentiality and nondisclosure agreements with its employees, consultants, advisors and partners. These agreements may not effectively prevent disclosure of confidential information and may not provide the Company with an adequate remedy in the event of unauthorized disclosure. In addition, if the Company’s employees, scientific consultants or partners develop inventions or processes that may be applicable to the Company’s products under development, such inventions and processes will not necessarily become the Company’s property, but may remain the property of those persons or their employers.
The Company has filed applications to register various trademarks for use in connection with its products in various countries and also, with respect to certain products, relies on the trademarks of third parties. These trademarks may not afford adequate protection or the Company or the third parties may not have the financial resources to enforce their rights under these trademarks which may enable others to use the trademarks and dilute their value.
In the regular course of business, the Company is party to litigation or other proceedings relating to intellectual property rights. For details of current intellectual property litigation, See ITEM 1: Legal Proceedings and Note 20,
Legal and other proceedings, to these Unaudited Consolidated Financial Statements set forth in this Quarterly Report on Form 10-Q.
The Company faces intense competition for highly qualified personnel from other companies and organizations
The Company relies on recruiting and retaining highly skilled employees to meet its strategic objectives. The Company faces intense competition for highly qualified personnel and the supply of people with the requisite skills may be limited, generally or geographically. The range of skills required and the geographies in which they are required by the Company may also change over time as Shire’s business evolves. If the Company is unable to retain key personnel or attract new personnel with the requisite skills and experience, it could adversely affect the implementation of the Company’s strategic objectives and ultimately adversely impact the Company’s revenues, financial condition or results of operations. Recent acquisitions by the Company, including without limitation, the Dyax and Baxalta acquisitions, and the terminated acquisition by AbbVie as well as internal reorganizations and transitions of our offices in Pennsylvania and the United Kingdom may increase the Company’s difficulty in recruiting and retaining employees.
Failure to successfully execute or attain strategic objectives from the Company’s acquisitions and growth strategy may adversely affect the Company’s financial condition and results of operations
The Company’s business depends to a significant extent on its ability to improve and expand its product pipeline through strategic acquisitions. Such improvements and expansions, however, are subject to the ability of the Company’s management to effectively identify appropriate strategic targets and effectuate the contemplated transactions, the availability and relative cost of acquisition opportunities as well as competition from other pharmaceutical companies seeking similar opportunities.
Moreover, even when such transactions are successfully executed, the Company may face subsequent difficulties in integrating the operations, infrastructure and personnel of acquired businesses and may experience unanticipated risks or liabilities that were not discovered, accurately disclosed or sufficiently assessed during the transactions’ due diligence process. Finally, even successfully acquired and integrated businesses may ultimately fail or fall short of achieving the Company’s strategic objectives for the transaction over the long term.
Any failures in the execution of a transaction, in the integration of an acquired business or in achieving the Company’s strategic objectives, including expected synergies, with respect to such transactions could result in slower growth, higher than expected costs, the recording of asset impairment charges and other actions which could adversely affect the Company’s business, financial condition and results of operations.
The Company has recently completed a number of strategic acquisitions, including Dyax in January 2016 and Baxalta in June 2016. Furthermore, the Company is currently exploring, and expects to continue to explore, opportunities for additional strategical acquisitions or combinations in the future. Proposed and completed acquisitions, as well as any future acquisitions, each entail various risks, which include but are not limited to:
Shire’s growth strategy depends in part upon its ability to expand its product portfolio through external collaborations, which, if unsuccessful, may adversely affect the development and sale of its products
Shire intends to continue to explore opportunities to enter into collaboration agreements and external alliances with other parties. These third party collaborators may include other biopharmaceutical companies, academic and research institutions, governments and government agencies and other public and private research organizations.
These third party collaborators are often directly responsible for clinical development under these types of arrangements, and the Company does not have the same level of decision-making capabilities for the prioritization and management of development-related activities as it does for its internal research and development activities. Failures by these partners to meet their contractual, regulatory, or other obligations to the Company, or any disruption in the relationships between the Company and these partners, could have a material adverse effect on the Company’s pipeline and business. In addition, the Company’s collaborative relationships for research and development extend for many years and may give rise to disputes regarding the relative rights, obligations and revenues of Shire and its partners, including the ownership of intellectual property and associated rights and obligations. These could result in the loss of intellectual property rights or other intellectual property protections, delay the development and sale of potential pharmaceutical products, and lead to lengthy and expensive litigation or arbitration.
Long-term public-private partnerships with governments and government agencies, including in certain emerging markets, may include technology transfers to support local manufacturing capacity and technical expertise. Shire cannot predict whether these types of transfers and arrangements will become more common in the future. These types of technology transfers and similar arrangements could have a material adverse effect on the Company’s results of operations as a result of lost exclusivity with respect to certain manufacturing and technical capabilities, particularly if this model becomes widely used. Public-private partnerships are also subject to risks of doing business with governments and government agencies, including risks related to sovereign immunity, shifts in the political environment, changing economic and legal conditions and social dynamics.
A slowdown of global economic growth, or economic instability of countries in which the Company does business, could have negative consequences for the Company’s business and increase the risk of non-payment by the Company’s customers
Growth of the global pharmaceutical market has become increasingly tied to global economic growth. Accordingly, a substantial and lasting slowdown of the global economy, or major national economies, could negatively affect growth in the markets in which the Company operates. Such a slowdown, or any resultant austerity measures adopted by governments in response to a slowdown, could result in national governments making significant cuts to their public spending, including national healthcare budgets, or reducing the level of reimbursement they are willing and able to provide to the Company for its products and, as a result, adversely affect the Company’s revenues, financial condition or results of operations.
A slowdown of a nation’s economy could also lead to financial difficulties for some of the Company’s significant customers, including national governments, and result in a greater risk of delayed orders or payments, defaults or non-payments of outstanding payment obligations by the Company’s customers in that country, which could adversely affect the Company’s revenues, financial condition or results of operations.
Changes in foreign currency exchange rates and interest rates could have a material adverse effect on Shire’s operating results and liquidity
Shire reports its financial results in U.S. dollars, but generates a substantial portion of its revenue (approximately 28.6% of its total revenue on a pro forma basis in 2016) outside the United States. As a result, Shire’s financial results may be adversely affected by fluctuations in foreign currency exchange rates. Shire cannot predict with any certainty changes in foreign currency exchange rates or the ability of the Company to mitigate these risks. Shire may experience additional volatility as a result of inflationary pressures and other macroeconomic factors in certain emerging market countries. Shire is also exposed to changes in interest rates, and Shire’s ability to access the money markets and capital markets could be impeded if adverse liquidity market conditions occur.
For discussion of the financial impact of foreign exchange rate and interest rate fluctuations, and the ways and extent to which Shire attempts to mitigate such impact, see “PART 1: ITEM 3 Quantitative and Qualitative Disclosures about Market Risk.”
The Company is subject to evolving and complex tax laws, which may result in additional liabilities that may adversely affect the Company’s financial condition or results of operations
The Company is subject to evolving and complex tax laws in the jurisdictions in which it operates, and routinely obtains advice on matters, including the tax treatment of the break fee received in connection with the terminated offer for Shire by AbbVie Inc. (“AbbVie”) in 2014. Significant judgment is required in determining the Company’s tax liabilities, and the Company’s tax returns are periodically examined by various tax authorities. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its accrual for tax contingencies; however, due to the complexity of tax matters, the ultimate resolution of any tax matters may result in payments greater or less than amounts accrued. In addition, the Company may be affected by changes in tax laws, including tax rate changes, new tax laws, and revised tax law interpretations in domestic and foreign jurisdictions and between jurisdictions.
If a marketed product fails to work effectively or causes adverse side effects, this could result in damage to the Company’s reputation, the withdrawal of the product and legal action against the Company
Unanticipated side effects or unfavorable publicity from complaints concerning any of the Company’s products, or those of its competitors, could have an adverse effect on the Company’s ability to obtain or maintain regulatory approvals or successfully market its products. The testing, manufacturing, marketing and sales of pharmaceutical products and medical devices entail a risk of product liability claims, product recalls, litigation and associated adverse publicity. The cost of defending against such claims is expensive even when the claims are not merited. A successful product liability claim against the Company could require the Company to pay a substantial monetary award. If, in the absence of adequate insurance coverage, the Company does not have sufficient financial resources to satisfy a liability resulting from such a claim or to fund the legal defense of such a claim, it could become insolvent. Product liability insurance coverage is expensive, difficult to obtain and may not be available in the future on acceptable terms. Moreover, an adverse judgment in a product liability suit could generate substantial negative publicity about the Company’s products and business and inhibit or prevent commercialization of other products.
Although biosimilars represent a new opportunity for the Company, the market has an uncertain regulatory framework, and Shire and its partners may not be able to successfully develop and introduce biosimilar products
The Company is working to develop and commercialize biosimilar products, including with its partners. Uncertainty remains concerning both the regulatory pathway in the United States and in other countries to obtain approval of biosimilar products and the commercial pathway to successfully market and sell such products. The Biologics Price Competition and Innovation Act, or the BPCIA, which was passed on March 23, 2010 as Title VII to the PPACA, authorizes the FDA to approve biosimilars through a more abbreviated pathway as compared to new biologics. Although the FDA approved the first biosimilar drug in the United States in March 2015 and recently approved a second biosimilar drug in April 2016, the approval pathway for biosimilar applications remains relatively untested and is subject to ongoing guidance from the FDA. Delays and uncertainties in these approval pathways may result in delays or difficulties in the approval of Shire’s biosimilar products by regulatory authorities, subject the Company to unanticipated development costs or otherwise reduce the value of the investments the Company has made in biosimilars. Any such delays, difficulties or unanticipated costs could impact the profitability of Shire’s biosimilars products.
Even if Shire and its partners are able to obtain approvals from the FDA or other relevant regulatory authorities, Shire’s biosimilar products and partnerships may not be commercially successful and may not generate profits in amounts that are sufficient to offset the amount invested to develop such biosimilars and obtain such approvals. Biosimilar products could be subject to extensive patent clearances and patent infringement litigation, which could delay or prevent the commercial launch of a product for many years. Market success of biosimilar products will depend on demonstrating to patients, physicians and payors (such as insurance companies) that such products are
safe and effective compared to other existing products and offer a more competitive price or other benefit over existing therapies. If Shire’s competitors develop biosimilar products more quickly or more efficiently than Shire does, Shire may not be able to effectively execute on its biosimilar strategy. Depending on the outcome of these risks, Shire’s sales of biosimilar products and related profitability may not meet Shire’s expectations, and Shire’s results of operations or financial condition could be adversely affected.
The Company is dependent on information technology and its systems and infrastructure face certain risks, including from service disruptions, the loss of sensitive or confidential information, cyber-attacks and other security breaches or data leakages that could have a material adverse effect on the Company’s revenues, financial condition or results of operations
The Company relies to a large extent upon sophisticated information technology systems to operate its businesses. In the ordinary course of business, the Company collects, stores and transmits large amounts of confidential information (including, but not limited to, personal information and intellectual property), and it is critical that the Company does so in a secure manner to maintain the confidentiality and integrity of such confidential information. The size and complexity of the Company’s information technology and information security systems, and those of third-party vendors with whom the Company contracts (and the large amounts of confidential information that is present on them), make such systems potentially vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by the Company’s employees or vendors, or from attacks by malicious third parties.
The Company and its vendors’ sophisticated information technology operations are spread across multiple, sometimes inconsistent platforms, which pose difficulties in maintaining data integrity across systems. The ever-increasing use and evolution of technology, including cloud-based computing, creates opportunities for the unintentional dissemination or intentional destruction of confidential information stored in the Company’s systems. The Company and its vendors could also be susceptible to third party attacks on their information security systems, which attacks are of ever increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise, including criminal groups, “hackers” and others. While the Company has taken steps to protect such information and invested heavily in information technology, there can be no assurance that these efforts will prevent service interruptions or security breaches in its systems, the loss of data or other confidential information due to a lack of redundant backup systems, or the unauthorized or inadvertent wrongful use or disclosure of confidential information that could adversely affect the Company’s business operations or result in the loss, dissemination, or misuse of critical or sensitive information.
A breach of the Company’s security measures or the accidental loss, inadvertent disclosure, unapproved dissemination, misappropriation or misuse of trade secrets, proprietary information, or other confidential information, whether as a result of theft, hacking, fraud, trickery or other forms of deception, or for any other cause, could enable others to produce competing products, use the Company’s proprietary technology or information, and/or adversely affect the Company’s business position. Further, any such interruption, security breach, loss or disclosure of confidential information, could result in financial, legal, business, and reputational harm to the Company and could have a material adverse effect on the Company’s revenues, financial condition or results of operations.
In addition, legislators and/or regulators in countries in which the Company operates are increasingly adopting or revising privacy, information security and data protection laws, as well as focusing on increased privacy-related enforcement activity, that potentially could have a significant impact on the Company’s current and planned privacy, data protection and information security-related practices, its collection, use, sharing, retention and safeguarding of consumer and/or employee information, and some of its current or planned business activities.
Shire faces risks relating to the expected exit of the United Kingdom from the European Union.
On June 23, 2016, the United Kingdom held a remain-or-leave referendum on the United Kingdom’s membership within the European Union, the result of which favored the exit of the United Kingdom from the European Union (“Brexit”). A process of negotiation will likely determine the future terms of the United Kingdom’s relationship with the European Union, as well as whether the United Kingdom will be able to continue to benefit from the European Union’s free trade and similar agreements. The timing of the Brexit and potential impact of Brexit on Shire’s market share, sales, profitability and results of operations is unclear. Depending on the terms of Brexit, economic conditions in the United Kingdom, the European Union and global markets may be adversely affected by reduced growth and volatility. The uncertainty before, during and after the period of negotiation is also expected to have a negative economic impact and increase volatility in the markets, particularly in the eurozone. Such volatility and negative economic impact could, in turn, adversely affect the Company’s revenues, financial condition or results of operations.
Risks Related to the Combination with Baxalta Incorporated
The Company may not successfully integrate the businesses of Shire and Baxalta
Achieving the anticipated benefits of the combination of Shire and Baxalta will depend in part upon whether the two companies integrate their businesses in an effective and efficient manner. The Company may not be able to accomplish this integration process successfully or realize the expected synergies as planned. The integration of businesses is complex and time-consuming. The difficulties that could be encountered include the following:
In addition, there have been and will continue to be integration costs and non-recurring transaction costs (such as fees paid to legal, financial, accounting and other advisors and other fees paid in connection with the combination) associated with the combination, including costs associated with combining operations and achieving the expected synergies as planned, and such costs may be significant.
An inability to realize the full extent of the anticipated benefits of the combination of Shire and Baxalta, including estimated cost synergies, as well as any delays encountered in the integration process and realizing such benefits, could have an adverse effect upon the revenues, level of expenses and operating results of the Company, which may materially adversely affect the value of the Company’s ordinary shares and ADSs.
Shire has incurred significant additional indebtedness in connection with the merger, which has decreased the Company’s business flexibility and increased its interest expense. All of the Company’s debt obligations, and any future indebtedness the Company may incur, have priority over the Company’s ordinary shares and ADSs with respect to payment in the event of a liquidation, dissolution or winding up
The Company has secured an $18.0 billion fully underwritten bank facility, of which $12.4 billion was used to finance the cash component of the per share consideration for the combination with Baxalta and the remaining commitment has been cancelled. In connection with the combination, the Company also guaranteed approximately $5.1 billion of outstanding senior notes issued by Baxalta. The Company also has various financing arrangements, including revolving credit facilities. The Company has announced that it intends to maintain an investment grade credit rating, but one or more credit rating agencies may determine that the Company’s, or a subsidiary of the Company’s, credit rating is below investment grade due to the merger, which could increase the Company’s borrowing costs. The Company’s aggregate indebtedness could have the effect, among other things, of reducing the Company’s flexibility to respond to changing business and economic conditions as well as reducing funds available for capital expenditures, acquisitions, and creating competitive disadvantages for the Company relative to other companies with lower indebtedness levels. The Company also incurred various costs and expenses associated with the debt financing.
The Company intends to refinance the bank facility through capital market debt issuances in due course. Its ability to refinance the indebtedness will depend on the condition of the capital markets and the Company’s financial condition at such time. Any refinancing of indebtedness could be at higher interest rates and may require the Company to comply with more onerous covenants, which could further restrict business operations and such refinancing may not be available at all.
Moreover, the Company may be required to raise substantial additional financing to fund capital expenditures and acquisitions. The Company’s ability to arrange additional financing and the costs of that financing will depend on, among other factors, the Company’s financial position and performance, as well as prevailing market conditions and other factors beyond Shire’s control.
In any liquidation, dissolution or winding up of Shire, the Company’s ordinary shares and ADSs would rank below all debt claims against Shire or any of its subsidiaries. In addition, any convertible or exchangeable securities or other equity securities that Shire may issue in the future may have rights, preferences and privileges more favorable than those of the Company’s ordinary shares and ADSs. As a result, holders of the Company’s ordinary shares and ADSs will not be entitled to receive any payment or other distribution of assets upon any liquidation or dissolution until after Shire’s obligations to its debt holders and holders of equity securities, which rank senior to the Company’s ordinary shares and ADSs, have been satisfied.
Uncertainties associated with the combination may cause a loss of employees and may otherwise affect the future business and operations of Shire and the combined company
Uncertainty about the effect of the combination on employees and customers may have an adverse effect on the Company following the combination. These consequent uncertainties may impair the Company’s ability to retain and motivate key personnel and could also cause customers, suppliers, licensees, partners and other business partners to defer entering into contracts with, making other decisions concerning, or seeking to change existing business relationships with the Company. Because the Company depends on the experience and industry knowledge of their executives and other key personnel to execute their business plans, the Company may be unable to meet its strategic objectives.
Baxalta only operated as an independent company from July 1, 2015 until the consummation of its merger with U.S. on June 3, 2016, and Baxalta’s historical financial information is not necessarily representative of the results that Baxalta would have achieved as a separate, publicly traded company, and may not be a reliable indicator of future results of Baxalta. Moreover, any pro forma financial information published by the Company is not necessarily representative of the results that the Company would have achieved, and may not be a reliable indicator of future results.
Any historical financial information about Baxalta prior to July 1, 2015 refers to Baxalta’s business as operated by and integrated with Baxter. Baxalta’s historical and pro forma financial information for such periods was derived from the consolidated financial statements and accounting records of Baxter. In addition, certain pro forma financial information for the Company has incorporated Baxalta’s historical financial information for such periods. Accordingly, such historical and pro forma financial information of Baxalta or the Company does not necessarily reflect the financial condition, results of operations or cash flows that Baxalta would have achieved as a separate, publicly traded company during the periods presented, or those that Shire would have achieved had the combination occurred as assumed for the preparation of the pro forma financial information. As a result, the Company’s pro forma financial information is not necessarily representative of the results that the Company will achieve after the merger with Baxalta, and may not be a reliable indicator of future results.
Baxter may not satisfy its obligations under various transaction agreements that have been executed as part of the separation or Shire may fail to have necessary systems and services in place when certain of the transaction agreements expire.
In connection with Baxalta’s separation from Baxter, the parties entered into various agreements, including a separation and distribution agreement, a transition services agreement, a tax matters agreement, a manufacturing and supply agreement, an employee matters agreement, license agreements and commercial agreements. The separation and distribution agreement, the tax matters agreement and employee matters agreement determined the allocation of assets and liabilities between the companies following the separation for those respective areas and provide for indemnifications related to liabilities and obligations. The transition services agreement sets forth certain services to be performed by each company for the benefit of the other for a period of time after the separation. Baxalta and now Shire will rely on Baxter to satisfy its performance and payment obligations under these agreements. If Baxter does not satisfy its obligations under these agreements, including its indemnification obligations, Shire could incur operational difficulties or losses as they relate to Baxalta’s businesses. If Shire is unable to successfully integrate the Baxalta businesses into Shire’s systems and services, or if Shire does not have agreements with other providers of these services once certain transaction agreements expire, Shire may not be able to operate the Baxalta businesses effectively and Shire’s profitability may decline.
The combination with Baxalta could result in significant liability to the Company if the combination causes the spin-off of Baxalta from Baxter or a Later Distribution, as defined below, to be taxable
In connection with the signing of the merger agreement, Baxter, Shire and Baxalta entered into the Letter Agreement, which, among other things, supplements certain aspects of the tax matters agreement referenced above. Under the Letter Agreement, from and after the closing of the merger, Baxalta agreed to indemnify, and the
Company agreed to guarantee such indemnity to, Baxter and each of its affiliates and each of their respective officers, directors and employees against certain tax-related losses attributable to, or resulting from, in whole or in part, the merger. If the contribution of property by Baxter in one or more transfers to Baxalta in exchange for shares of Baxalta common stock, cash, and the assumption of certain liabilities, together with the distribution by Baxter on July 1, 2015 of approximately 80.5% of the shares of Baxalta common stock to shareholders of Baxter (the “spin-off”), Baxter’s distribution of cash received from Baxalta to its creditors and/or a Later Distribution, collectively, the “Baxter Transactions”, are determined to be taxable as a result, in whole or in part, of the merger (for example, if the merger is deemed to be part of a plan, or series of related transactions, that includes the Baxter Transactions), Baxter and its shareholders could incur significant tax liabilities. Under the tax matters agreement, and the Letter Agreement, Baxalta and the Company may be required to indemnify Baxter for any such tax liabilities. Baxter’s waiver of the provisions under the tax matters agreement restricting Baxalta’s ability to enter into and consummate the merger will not relieve Baxalta or the Company of its obligation to indemnify Baxter if the merger causes any of the Baxter Transactions to be taxable.
In connection with the signing and closing of the merger agreement, the Company received an opinion from Cravath, Swaine & Moore LLP (“Cravath”), tax counsel to the Company, to the effect that the merger will not cause the Baxter Transactions to fail to qualify as tax-free to Baxter and its shareholders under Sections 355, 361 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended.
The tax opinions referred to in the immediately preceding paragraph are based upon various factual representations and assumptions, as well as certain undertakings made by the Shire, Baxter and Baxalta. If any of the factual representations or the assumptions in the tax opinions are untrue or incomplete in any material respect, an undertaking is not complied with or the facts upon which the tax opinions are based are materially different from the facts at the time of the merger, the opinions may not be valid. Moreover, opinions of counsel are not binding on the Internal Revenue Service (the “IRS”). As a result, the conclusions expressed in the tax opinions could be challenged by the IRS. None of Shire, Baxalta or Baxter has requested a ruling from the IRS regarding the impact of the merger on the tax treatment of the Baxter Transactions, since such rulings are not made by the IRS. Further, the tax opinions do not address all tax aspects of the spin-off, a Later Distribution and other related transactions and it is possible the Company may be obligated to indemnify Baxter despite the continuing validity of the tax opinions.
The Company’s indemnification obligations to Baxter and its affiliates, officers, directors and employees under the tax matters agreement and letter agreement are not limited in amount or subject to any cap. If Baxalta or the Company is required to indemnify Baxter and its affiliates and their respective officers, directors and employees under the circumstances set forth in the tax matters agreement, as supplemented by the Letter Agreement, it could have a material adverse effect on the Company.
In this Quarterly Report on Form 10-Q, references to the “Later Distributions” includes the following transactions that were undertaken by Baxter prior to the closing of the merger: (i) two debt-for-equity exchanges (and related underwritten offerings) with respect to Baxalta shares, (ii) an offer to exchange Baxter shares for Baxalta shares, and (iii) a contribution of Baxalta shares to Baxter’s U.S. pension fund, which, in each case, were undertaken prior to the earlier of any Baxalta or Company stockholder vote with respect to the merger and that were intended to be part of a plan that includes the spin-off.
In connection with the merger with Baxalta, the separation and the Later Distributions could result in significant liability to the Company due to Baxalta’s spin-off from Baxter
The Baxter Transactions are intended to qualify for tax-free treatment to Baxter and its stockholders under Sections 355, 361, and 368(a)(1)(D) of the Code. Completion of the separation was conditioned upon, among other things, the receipt of a private letter ruling from the IRS regarding certain issues relating to the tax-free treatment of the Baxter Transactions. Although the IRS private letter ruling is generally binding on the IRS, the continuing validity of such ruling is subject to the accuracy of factual representations and assumptions made in the ruling. Completion of the initial distribution of Baxalta shares on July 1, 2015 was also conditioned upon Baxter’s receipt of a tax opinion from KPMG LLP, or KPMG regarding certain aspects of the separation not covered by the IRS private letter ruling. The opinion was based upon various factual representations and assumptions, as well as certain undertakings made by Baxter and Baxalta. If any of the factual representations or assumptions in the IRS private letter ruling or tax opinion are untrue or incomplete in any material respect, an undertaking is not complied with, or the facts upon which the IRS private letter ruling or tax opinion are based are materially different from the actual facts relating to the Baxter Transactions, the opinion or IRS private letter ruling may not be valid. Moreover, opinions of a tax advisor are not binding on the IRS. As a result, the conclusions expressed in the opinion of a tax advisor could be successfully challenged by the IRS.
If the Baxter Transactions are determined to be taxable, Baxter and its stockholders could incur significant tax liabilities, and under the tax matters agreement and the letter agreement which were assumed by Shire following the merger, the Company may be required to indemnify Baxter for any liabilities incurred by Baxter if the liabilities are caused by any action or inaction undertaken by Baxalta following the separation (including as a result of the merger). For additional detail, see ITEM 2: Management’s Discussion & Analysis of Financial Condition and Results
of Operations—Agreements with Baxter and “The combination could result in significant liability to the Company if the combination causes the spin-off of Baxalta from Baxter or a Later Distribution, as defined below, to be taxable.”
Certain Baxalta agreements may contain change of control provisions that may have been triggered by the merger that, if acted upon or not waived, could cause the Company to lose the benefit of such agreement and incur liabilities or replacement costs, which could have a material adverse effect on the Company
Prior to and following the merger, Baxalta and its affiliates are each party to various agreements with third parties, including certain license agreements, business development-related agreements, production and distribution related agreements, bonding/financing facilities, contracts for the performance of services material to the operations of Baxalta and/or its affiliates, IT contracts, technology licenses and employment agreements that may contain change of control provisions that may have been triggered upon the closing of the merger. Agreements with change of control provisions typically provide for or permit the termination of the agreement upon the occurrence of a change of control of one of the parties which can be waived by the relevant counterparties. In the event that there is such a contract or arrangement requiring a consent or waiver in relation to the merger for which such consent or waiver was not obtained, the Company could lose the benefit of the underlying agreement and incur liabilities or replacement costs, which could have an adverse effect on the Company.
New regulations issued by the U.S. Department of Treasury may impact the Company following the merger with Baxalta.
On April 4, 2016, the U.S. Department of Treasury issued new regulations applicable to acquisitions of U.S. companies by non-U.S. companies. These regulations, among other things, change the manner in which thresholds contained within the so-called “anti-inversion” rules that govern how the combined company will be taxed are calculated. These calculations are affected by the merger and could impact any future acquisitions of U.S. companies funded in whole or in part by Shire securities. These calculations are complicated and depend on several factors. Moreover, the U.S. Department of Treasury also introduced proposed “earnings stripping” regulations that may, among other things, cause certain related-party debt instruments issued by a U.S. corporation to be treated as equity, resulting in the loss of deductible interest payments for U.S. federal income tax purposes.
These regulations are newly issued and complex, and as such their application to any particular set of facts is uncertain. Shire believes that the regulations are not likely to affect the expected tax position of the Company following the acquisition of Baxalta, which belief is based on, among other things, facts that may change or judgments that may prove to be incorrect and, if incorrect, could have an adverse impact on the expected tax position of the Company.
Furthermore, the U.S. tax authorities could issue additional guidance as to the application of these regulations or issue new regulations that could have an adverse effect on the expected tax position of the Company.
4.1 | Form of Senior Note due 2019 (incorporated by reference to Exhibit 4.1 of Shire’s Current Report on Form 8-K filed on September 21, 2016). |
4.2 | Form of Senior Note due 2021 (incorporated by reference to Exhibit 4.2 of Shire’s Current Report on Form 8-K filed on September 21, 2016). |
4.3 | Form of Senior Note due 2023 (incorporated by reference to Exhibit 4.3 of Shire’s Current Report on Form 8-K filed on September 21, 2016). |
4.4 | Form of Senior Note due 2026 (incorporated by reference to Exhibit 4.4 of Shire’s Current Report on Form 8-K filed on September 21, 2016). |
4.5 | Indenture, |
4.6 | First Supplemental Indenture, dated as of September 23, 2016, to the Indenture, dated as of |
10.01 | Underwriting Agreement, dated September 19, 2016, among Shire plc, Shire Acquisitions Investments Ireland DAC, and Barclays Capital Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and |
31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a - 14 under The Exchange Act.* |
31.2 | Certification of the Chief Financial Officer pursuant to Rule 13a - 14 under The Exchange Act.* |
32.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.* |
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