The results for the three months to September 30, 2005 have been retrospectively adjusted to reflect the adoption of SFAS 123R.
The following table provides an analysis of the Company’s total revenues by source:
All product sales are reported in the Pharmaceutical Products segment, all royalties are reported in the Royalty segment.
* REPLAGAL was acquired in the acquisition of TKT which was completed on July 27, 2005. Total sales for REPLAGAL, including pre-acquisition sales for the 3 months ended September 30, 2005 were $24.1 million. Including pre-acquisition sales, product sales growth was 34% for REPLAGAL.
The following discussion includes references to prescription and market share data for the Company’s key products. The source of this data is IMS Health, September 2006. IMS Health is a leading global provider of business intelligence for the pharmaceutical and healthcare industries.
ADDERALL XR
ADDERALL XR is the leading brand in the US ADHD market with a market share of 26% in September 2006 (2005: 25%). The US ADHD market growth of 4% and the increase in market share contributed to a 9% increase in US prescriptions for ADDERALL XR for the three months to September 30, 2006 compared to the same period in 2005.
Sales of ADDERALL XR for the three months to September 30, 2006 were $207.6 million, an increase of 25% compared to the same period in 2005 (2005: $165.9 million). Product sales growth was significantly more than prescription growth, due to price increases in August 2005 and April 2006 and lower levels of pipeline de-stocking compared with Q3 2005.
During October 2005 Shire filed a Citizen Petition with the FDA requesting that the FDA require more rigorous bioequivalence testing or additional clinical testing for generic or follow-on drug products that reference ADDERALL XR before they can be approved. Shire received correspondence from the FDA in April 2006 stating that, due to the complex issues raised requiring extensive review and analysis by the FDA’s officials, a decision cannot yet be reached by the FDA. The FDA did not provide any guidance as to when that decision may be reached.
On August 14, 2006, Shire and Barr announced that all pending litigation in connection with Barr’s Abbreviated New Drug Application (ANDA) and its attempt to market generic versions of Shire’s ADDERALL XR had been settled. As part of the settlement, Barr entered into consent judgments and agreed to permanent injunctions confirming the validity and enforceability of Shire’s US Patents Nos. 6,322,819 (the “‘819 Patent”), 6,601,300 (the “‘300 Patent”) and 6,913,768 (the “‘768 Patent”). Barr has also admitted that any generic product made under its ANDA would infringe the ‘768 patent.
Under the terms of the settlement, Barr will not be permitted to market a generic version of ADDERALL XR in the United States until April 1, 2009, except in certain limited circumstances, such as the launch of another party’s generic version of ADDERALL XR. No payments to Barr are involved in the settlement agreement.
For further information about the litigation proceedings relating to the Company’s ADDERALL XR patents see ITEM 1 of Part II of this Form 10-Q: Legal Proceedings.
DAYTRANA
Following its launch in June 2006, DAYTRANA achieved a 1.7% share of the ADHD market by the end of Q3 2006. Sales in this period were $9.9 million. The addition of DAYTRANA combined with growth in ADDERALL XR share has helped Shire grow its total share of the ADHD market to 29% in the quarter ending September 30, 2006 compared to 26% in the quarter ending September 30, 2005.
CARBATROL
US prescriptions for the three months to September 30, 2006 were down 7% compared to the same period in 2005. This was primarily due to a 5% decline in the US extended release carbamazepine prescription market. CARBATROL’s market share remained constant at 42%.
Sales of CARBATROL for the three months to September 30, 2006 were $20.4 million, an increase of 27% compared to the same period in 2005 (2005: $16.1 million). The difference between the increase in sales and decrease in prescriptions is due to price increases in October 2005 and July 2006, lower levels of pipeline de-stocking compared with Q3 2005 and reduced sales deductions.
In July 2006 Impax Laboratories, Inc. (Impax) deployed a sales force to begin promotion of CARBATROL under a promotional services agreement for the US market signed in January 2006.
Patent litigation proceedings with Nostrum Pharmaceuticals, Inc. (Nostrum) relating to CARBATROL are ongoing. On July 17, 2006 the Court entered an order staying discovery in this case until and through September 15, 2006. The parties have requested and the Court has granted a stay of discovery until and through December 29, 2006. No trial date has been set. Nostrum’s 30-month stay under the Hatch-Waxman Act expired on February 6, 2006. Accordingly, the FDA may approve Nostrum’s ANDA, once it meets all regulatory requirements.
41
On March 30, 2006 the Company was notified that Corepharma LLC (Corepharma) had filed an ANDA under the Hatch-Waxman Act seeking permission to market its generic version of carbamazepine extended release products in 100mg, 200mg and 300mg strengths. Shire Laboratories, Inc. filed suit against Corepharma for the infringement of US Patent No. 5,326,570 (the ‘570 Patent) in the District Court of New Jersey. The lawsuit triggered a stay of FDA approval of Corepharma’s generic products for 30 months from the date of Shire’s receipt of Corepharma’s notice of ANDA filing. No discovery schedule or trial date has been set.
For further information see ITEM 1 of Part II of this Form 10-Q: Legal Proceedings.
PENTASA
US prescriptions for the three months to September 30, 2006 were up 4% compared to the same period in 2005 primarily due to a 4% increase in the US oral mesalamine prescription market. PENTASA’s market share remained constant at 18%.
Sales of PENTASA for the three months to September 30, 2006 were $36.9 million, an increase of 1% compared to the same period in 2005 (2005: $36.6 million). Sales growth is lower than prescription growth due to the lower levels of pipeline stocking in Q3 2006 partly offset by the impact of the January 2006 price increase.
REPLAGAL
REPLAGAL was acquired by Shire as part of the TKT acquisition, which was completed on July 27, 2005. Product sales for the three months to September 30, 2006 were $32.4 million, the majority of which were in Europe. Total sales for REPLAGAL, including pre-acquisition sales ($8.1 million), for the three months to September 30, 2005 were $24.1 million. This represents a like-for-like increase in sales of 34% which was due in part to greater European coverage by an increased number of sales representatives, and strong growth in other international markets, especially Canada where an agreement on treatment guidelines was reached with the government.
ELAPRASE
ELAPRASE was launched at the end of July 2006 and has had a strong start with sales reaching $4.3 million by the end of Q3 2006.
XAGRID
Rest of the World (outside North America) sales were up by 11% to $13.3 million (2005: $12.0 million). Sales increased by 7% as expressed in the transaction currencies (XAGRID is primarily sold in Euros and Pounds sterling), due mainly to strong growth in sales to the UK and Pacific Basin and benefited by 4% from favorable exchange rate movements against the US$.
FOSRENOL
US prescriptions for the three months to September 30, 2006 were up 12% compared to the same period in 2005. This was primarily due to FOSRENOL increasing its share of the total US phosphate binding market, which in September 2006 was 9% (2005: 8.5%), in a market that had itself grown 8% over the same period. FOSRENOL was launched in the US in January 2005.
US sales of FOSRENOL for the three months to September 30, 2006 were up 18% to $11.4 million (2005: $9.7 million). The increase in net sales compared to prescription growth is due to price increases in January 2006 and July 2006, larger prescription size due to the addition of the 1g and 750mg units and lower sales deductions, partially offset by destocking in Q3 2006.
European sales of FOSRENOL for the 3 months to September 30, 2006 were $0.8 million, giving total FOSRENOL sales worldwide of $12.2 million.
FOSRENOL was launched in Austria, Ireland, Sweden and Denmark in December 2005 and in South Korea in June 2006. On July 11, 2006 Shire received confirmation that FOSRENOL had been recommended for approval through the Mutual Recognition Procedure in 11 markets in Europe. On September 8, 2006 FOSRENOL was approved in Germany and on September 21, 2006 it was approved in the UK. In Europe FOSRENOL has also been approved in Sweden, Portugal, Italy, Poland, Austria, Finland, Czech Republic, Denmark, France, Belgium, Cyprus, Greece, Luxembourg, Netherlands, Ireland, Iceland, Malta and Estonia. Launches will continue throughout Q4 2006 and 2007 in the EU, subject to finalization of national licensing and conclusion of pricing re-imbursement negotiations.
42
Foreign exchange effect
As many of the Company’s sales revenues are earned in currencies other than US dollars (primarily Canadian Dollars, Pounds sterling, Swedish kronor and Euros), revenue growth reported in US dollars includes the impact of translating the sales made in a local currency, into US dollars. The table below shows the effect of foreign exchange translations on the revenue growth of the key affected products as well as the underlying performance of key products in their local currency:
| | | 3 months to
September 30,
2006 sales in
US dollars
$M | | 3 months to
September 30,
2006 sales
growth in local
currency | | Impact of
translation
to US
dollars | | 3 months to
September 30,
2006 sales
growth in US
dollars |
| | |
| |
| |
| |
|
| XAGRID sales in Euros | | 7.9 | | -3% | | +4% | | +1% |
| XAGRID sales in Pounds sterling | | 5.5 | | +24% | | +6% | | +30% |
| CALCICHEW sales in Pounds sterling | | 10.0 | | +4% | | +5% | | +9% |
| REMINYL and REMINYL XL sales in Pounds sterling | | 5.2 | | +72% | | +9% | | +81% |
| |
| |
| |
| |
|
| Notes |
| Revenue growth analysis does not include sales of: |
| • | ADDERALL XR sales of $1.9 million in Canadian dollars due to the fact that sales of ADDERALL XR in Canada were suspended for most of 2005, affecting comparative data; and |
| • | REPLAGAL sales of $27.4 million in Euros and Swedish kronor. There is no comparative data for REPLAGAL as it was acquired with TKT in July 2005. |
Royalties
Royalty revenues increased to $60.4 million for the three months to September 30, 2006 (2005: $60.2 million). The following table provides an analysis of Shire’s royalty income:
| | | 3 months to
September 30,
2006
$’M | | 3 months to
September 30,
2005
$’M | |
change
% | |
| |
| |
| |
|
|
| 3TC | | 36.5 | | 39.6 | | -8 | * |
| ZEFFIX | | 9.3 | | 7.7 | | +21 | ** |
| Others | | 14.6 | | 12.9 | | +13 | |
| |
| |
| |
|
|
| Total | | 60.4 | | 60.2 | | 0 | |
| |
| |
| |
|
|
| * | The impact of foreign exchange movements has contributed +1% to the reported growth |
| ** | The impact of foreign exchange movements has contributed +2% to the reported growth |
3TC
Royalties from sales of 3TC for the three months to September 30, 2006 were $36.5 million (2005: $39.6 million).
Shire receives royalties from GSK on worldwide 3TC sales. GSK’s worldwide sales of 3TC for the three months to September 30, 2006 were $275 million, a decrease of 9% compared to the same period in 2005 (2005: $301 million). The nucleoside analogue market for HIV has continued to grow, however competitive pressures within the market have increased, leading to a decline in 3TC sales.
ZEFFIX
Royalties from sales of ZEFFIX for the three months to September 30, 2006 were $9.3 million (2005: $7.7 million).
Shire receives royalties from GSK on worldwide ZEFFIX sales. GSK’s worldwide sales of ZEFFIX for the three months to September 30, 2006 were $80 million, an increase of 19% compared to the same period in 2005 (2005: $67 million). This increase was primarily due to strong growth in the Korean, Japanese and Chinese markets.
43
OTHER
Other royalties are primarily in respect of REMINYL and REMINYL XL (now marketed as RAZADYNE and RAZADYNE ER in the US), a product marketed worldwide by Janssen Pharmaceutical N.V. (Janssen), an affiliate of Johnson & Johnson, with the exception of the United Kingdom and the Republic of Ireland where Shire has the exclusive marketing rights.
Sales of the REMINYL/RAZADYNE range, for the symptomatic treatment of mild to moderately severe dementia of the Alzheimer’s type, continue to grow in the Alzheimer’s market. Revenue in Q3 2006 was higher than in the same period in 2005, partly due to the impact of wholesalers destocking in Q3 2005 following the launch of RAZADYNE ER in the US in Q2 2005.
In June 2006 Janssen and Synaptech, Inc.(Synaptech) filed suit against Barr for infringement of their patent rights relating to RAZADYNE ER as a result of Barr filing an ANDA with the FDA for RAZADYNE ER. No court date has been set.
Barr and other generics have filed ANDAs with the FDA as regards RAZADYNE and Janssen and Synaptech have filed suit against some of those ANDA filers. The court date for these proceedings is June 2007.
Cost of product sales
For the three months to September 30, 2006 the cost of product sales amounted to 16% of product sales (2005: 20%). The increase in gross margin is primarily due to the lower fair value adjustment for REPLAGAL acquired inventory in Q3 2006 versus Q3 2005. REPLAGAL’s cost of product sales includes acquired inventories, which in accordance with US GAAP have been accounted for at fair value. For the three months to September 30, 2006 the cost of product sales for REPLAGAL included a $6.7 million adjustment in respect of the acquired inventory (2005: $17.2 million). This fair value adjustment increased Shire’s cost of product sales as a percentage of product sales in Q3 2006 by 2% (2005: 6%). All REPLAGAL inventories acquired as part of the TKT acquisition have now been consumed.
Research and Development (R&D)
R&D expenditure increased from $75.1 million in the three months to September 30, 2005 to $104.0 million for the three months to September 30, 2006. The increase was primarily due to upfront payments made to Duramed and Warren of $25 million and $5.5 million respectively.
Expressed as a percentage of total revenues, R&D expenditure was 23% for the three months to September 30, 2006 (2005: 20%). The upfront payments increased Shire’s R&D expenditure as a percentage of total revenues in the three months to September 30, 2006 by 7%.
Selling, general and administrative (SG&A)
SG&A expenses increased from $161.3 million in the three months to September 30, 2005 to $214.9 million in the three months to September 30, 2006, an increase of 33%. This increase is primarily related to the promotion and launch of DAYTRANA (including an increase in the ADHD sales force) and the recruitment of new US and European sales forces to launch MESAVANCE and new US and European sales forces to launch ELAPRASE.
As a percentage of product sales, SG&A expenses excluding depreciation and amortization were 56% (2005: 52%), reflecting the recruitment of the new US sales forces prior to the launch of their associated products. This ratio of SG&A to product sales should reduce for Q4 2006 as sales from these launches increase.
| 3 months to September 30, | | 2006
$’M | | (2)Adjusted 2005
$’M | | Change
% |
| |
| |
| |
|
| Sales costs | | 64.8 | | 45.5 | | +42 |
| Marketing costs | | 87.6 | | 59.5 | | +47 |
| Other SG&A costs | | 62.5 | | 56.3 | | +11 |
| |
| |
| |
|
| | | 214.9 | | 161.3 | | +33 |
| Depreciation and amortization(1) | | 25.6 | | 16.4 | | +56 |
| |
| |
| |
|
| Total SG&A costs | | 240.5 | | 177.7 | | +35 |
| |
| |
| |
|
(1) Excludes depreciation from manufacturing plants of $1.4 million (2005: $1.0 million) which is included in cost of product sales.
(2) Retrospectively adjusted following the adoption of SFAS No. 123R.
44
Depreciation and amortization
The depreciation charge for the three months to September 30, 2006 was $11.0 million (2005: $4.6 million). Amortization charges were $14.6 million for the three months to September 30, 2006 (2005: $11.8 million). The increase in both depreciation and amortization is primarily due to the increase in the asset base as a result of the TKT acquisition, together with the amortization of capitalized milestone payments for DAYTRANA.
Integration costs
For the three months to September 30, 2006 the Company did not record any costs for the integration of the TKT business into Shire (2005: $3.5 million).
Gain on sale of product rights
For the three months to September 30, 2006, the Company recognized a pre-tax gain of $63.0 million (2005: nil), on the disposal of ADDERALL to Duramed for $63.0 million in cash.
Interest income
For the three months to September 30, 2006 the Company received interest income of $12.6 million (2005: $6.9 million). For both periods this income primarily related to interest received on Shire’s cash balances. Interest income for Q3 2006 is higher than Q3 2005 as a result of increased cash balances and increases in US dollar interest rates.
Interest expense
For the three months to September 30, 2006 the Company incurred interest expense of $7.0 million (2005: $3.5 million). In 2006 and 2005 this expense primarily relates to a provision for interest, which may be awarded by the Court in respect of amounts due to those ex-TKT shareholders who have requested appraisal of the acquisition consideration payable for their TKT shares.
The trial date for the appraisal rights litigation has been set for April 23, 2007.
Taxation
The effective rate of tax for the three months to September 30, 2006 was 28% (2005: 29%, after excluding the in-process R&D write-off in respect of the TKT acquisition from the loss from continuing operations before income taxes). At September 30, 2006 net deferred tax assets of $107.4 million were recognized (December 31, 2005: $116.2 million).
Equity in earnings/(losses) of equity method investees
Net earnings of $1.2 million were recorded for the three months to September 30, 2006 (2005: net losses of: $0.6 million). This comprised earnings of $1.6 million from the 50% share of the antiviral commercialization partnership with GSK in Canada (2005: $1.2 million), offset by losses of $0.4 million being the Company’s share of losses in the GeneChem and EGS Healthcare Funds (2005: losses of $1.8 million).
45
Results of operations for the nine months to September 30, 2006 and 2005
The results for the nine months to September 30, 2005 have been retrospectively adjusted to reflect the adoption of FAS 123R.
Total revenues
The following table provides an analysis of the Company’s total revenues by source:
| | | 9 months to
September 30,
2006
$’M | | 9 months to
September 30,
2005
$’M | | change
% |
| |
| |
| |
|
| Product sales | | 1,108.2 | | 930.2 | | +19 |
| Royalties | | 181.8 | | 181.1 | | 0 |
| Other | | 9.5 | | 23.1 | | -59 |
| |
| |
| |
|
| Total | | 1,299.5 | | 1,134.4 | | +15 |
| |
| |
| |
|
All product sales are reported in the Pharmaceutical Products segment, all royalties are reported in the Royalty segment.
Product sales
The following table provides an analysis of the Company’s key product sales:
| | | 9 months to
September 30,
2006
$’M | | 9 months to
September 30,
2005
$’M | | Product sales
growth
% | | US prescription
growth
% |
| |
| |
| |
| |
|
| CNS | | | | | | | | |
| ADDERALL XR | | 634.4 | | 516.8 | | +23 | | +9 |
| ADDERALL | | 25.2 | | 31.0 | | -19 | | -20 |
| CARBATROL | | 50.7 | | 54.8 | | -7 | | -10 |
| DAYTRANA | | 9.9 | | - | | N/A | | N/A |
| | | | | | | | | |
| GI | | | | | | | | |
| PENTASA | | 99.5 | | 93.8 | | +6 | | 0 |
| COLAZIDE | | 6.8 | | 6.5 | | +5 | | N/A |
| | | | | | | | | |
| GP | | | | | | | | |
| AGRYLIN/XAGRID | | | | | | | | |
| NORTH AMERICA | | 4.7 | | 42.0 | | -89 | | N/A |
| ROW | | 39.5 | | 36.4 | | +9 | | N/A |
| FOSRENOL | | 26.1 | | 24.5 | | +7 | | +39 |
| CALCICHEW | | 33.2 | | 28.4 | | +17 | | N/A |
| REMINYL/REMINYL XL | | 15.0 | | 9.4 | | +60 | | N/A |
| SOLARAZE | | 9.8 | | 8.8 | | +11 | | N/A |
| VANIQA | | 5.7 | | 4.3 | | +33 | | N/A |
| LODINE | | 9.5 | | 9.5 | | 0 | | N/A |
| | | | | | | | | |
| HGT | | | | | | | | |
| REPLAGAL * | | 86.5 | | 16.0 | | N/A | | N/A |
| ELAPRASE | | 4.3 | | - | | N/A | | N/A |
| | | | | | | | | |
| Other product sales | | 47.4 | | 48.0 | | +1 | | |
| |
| |
| |
| | |
| Total product sales | | 1,108.2 | | 930.2 | | +19 | | |
| |
| |
| |
| | |
46
| * | REPLAGAL was acquired in the acquisition of TKT which was completed on July 27, 2005. Total sales for REPLAGAL, including pre-acquisition sales for the nine months ended September 30, 2005 were $69.2 million. Including pre-acquisition sales, product sales growth was 25% for REPLAGAL. |
The following discussion includes references to prescription and market share data for the Company’s key products. The source of this data is IMS Health, September 2006. IMS Health is a leading global provider of business intelligence for the pharmaceutical and healthcare industries.
ADDERALL XR
ADDERALL XR is the leading brand in the US ADHD market with a market share of 26% in September 2006 (2005: 25%). The US ADHD market grew 3% overall compared to the same period in 2005. These factors contributed to a 9% growth in US prescriptions for ADDERALL XR for the nine months to September 30, 2006 compared to the same period in 2005.
Sales of ADDERALL XR for the nine months to September 30, 2006 were $634.4 million, an increase of 23% compared to the same period in 2005 (2005: $516.8 million). Product sales growth was higher than prescription growth due mainly to the impact of price increases in August 2005 and April 2006 and lower levels of pipeline de-stocking compared with 2005.
During October 2005 Shire filed a Citizen Petition with the FDA requesting that the FDA require more rigorous bioequivalence testing or additional clinical testing for generic or follow-on drug products that reference ADDERALL XR before they can be approved. Shire received correspondence from the FDA in April 2006 stating that, due to the complex issues raised requiring extensive review and analysis by the FDA’s officials, a decision cannot yet be reached by the FDA. The FDA did not provide any guidance as to when that decision may be reached.
On August 14, 2006, Shire and Barr announced that all pending litigation in connection with Barr’s ANDA and its attempt to market generic versions of Shire’s ADDERALL XR had been settled. As part of the settlement, Barr entered into consent judgments and agreed to permanent injunctions confirming the validity and enforceability of Shire’s ‘819, ‘300 and ‘768 Patents. Barr has also admitted that any generic product made under its ANDA would infringe the ‘768 patent.
Under the terms of the settlement, Barr will not be permitted to market a generic version of ADDERALL XR in the United States until April 1, 2009, except for certain limited circumstances, such as the launch of another party’s generic version of ADDERALL XR. No payments to Barr are involved in the settlement agreement.
For further information about the litigation proceedings relating to the Company’s ADDERALL XR patents see ITEM 1 of Part II of this Form 10-Q: Legal Proceedings. Any decrease in the sales of ADDERALL XR would significantly reduce revenues and earnings.
DAYTRANA
Following its launch in June 2006, DAYTRANA achieved a 1.7% share of the ADHD market by September 30, 2006. Sales for the nine months to September 30, 2006 were $9.9 million.
CARBATROL
US prescriptions for the nine months to September 30, 2006 were down 10% compared to the same period in 2005. This was primarily due to a 6% decrease in the US extended release carbamazepine prescription market, and limited promotion of the product during 2006 leading to a 1% decrease in Shire’s market share of the total US extended release carbamazepine prescription market to 42% in September 2006 (2005: 43%).
Sales of CARBATROL for the nine months to September 30, 2006 were $50.7 million, a decrease of 7% compared to the same period in 2005 (2005: $54.8 million). The difference between the decreases in sales and the level of prescriptions is due to price increases in October 2005 and July 2006 and reduced sales deductions. This has been partially offset by pipeline destocking in 2006 compared to pipeline stocking in 2005.
In July 2006 Impax deployed a sales force to begin promotion of CARBATROL under a promotional services agreement for the US market signed in January 2006.
Patent litigation proceedings with Nostrum relating to CARBATROL are ongoing. On July 17, 2006 the Court entered an order staying discovery in this case until and through September 15, 2006. The parties have requested and the Court
47
has granted a stay of discovery until and through December 29, 2006. No trial date has been set. Nostrum’s 30-month stay under the Hatch-Waxman Act expired on February 6, 2006. Accordingly, the FDA may approve Nostrum’s ANDA, once it meets all regulatory requirements.
On March 30, 2006 the Company was notified that Corepharma had filed an ANDA under the Hatch-Waxman Act seeking permission to market its generic version of carbamazepine extended release products in 100mg, 200mg and 300mg strengths. Shire Laboratories filed suit against Corepharma for the infringement of the US Patent No. 5,326,570 in the District Court of New Jersey. The lawsuit triggered a stay of FDA approval of Corepharma’s generic products for 30 months from the date of Shire’s receipt of Corepharma’s notice of ANDA filing. No discovery schedule or trial date has been set.
For further information see ITEM 1 of Part II of this Form 10-Q: Legal Proceedings.
PENTASA
PENTASA had a 18% share of the total US oral mesalamine prescription market in September 2006 (September 2005: 18%), a market that grew 3% compared with the same period in 2005. US prescriptions for the nine months to September 30, 2006 were comparable to the same period in 2005.
Sales of PENTASA for the nine months to September 30, 2006 were $99.5 million, an increase of 6% compared to the same period in 2005 (2005: $93.8 million). The difference between sales growth and the levels of prescription is due to the impact of the January 2006 price increase, a change in the product sales mix from the 250mg to 500mg dose strength and lower levels of pipeline destocking in the nine months to September 2006.
REPLAGAL
REPLAGAL was acquired by Shire as part of the TKT acquisition, which was completed on July 27, 2005. Product sales for the nine months to September 30, 2006 were $86.5 million, the majority of which were in Europe. Product sales for the nine months to September 2005 were $69.2 million, including $16.0 million of post acquisition sales and $53.2 million of pre acquisition sales. The increase in sales of 25% is primarily due to greater European coverage by an increased number of sales representatives, and strong growth in the other international markets, especially Canada where an agreement on treatment guidelines was reached with the government.
AGRYLIN/XAGRID
AGRYLIN/XAGRID sales worldwide for the nine months to September 30, 2006 were $44.2 million down 43% compared to the same period in 2005 (2005: $78.4 million). XAGRID sales for the nine months to September 30, 2006 were $39.5 million, an increase 9% compared to the same period in 2005 (2005: $36.4 million). Sales increased by 10% as expressed in the transaction currencies (XAGRID is primarily sold in Euros and Pounds sterling), due mainly to strong growth in sales to the UK and Pacific Basin, offset by unfavourable exchange rate movements of 1%. North American sales were $4.7 million (2005: $42.0 million). This reduction was expected following the approval of generic versions of AGRYLIN in the US market in April 2005.
FOSRENOL
US prescriptions for the nine months to September 30, 2006 were up 39% compared to the same period in 2005. FOSRENOL was launched in the US in January 2005, and its share of the total US phosphate binding market in September 2006 was 9% (2005: 8%).
Sales of FOSRENOL for the nine months to September 30, 2006 were $26.1 million, an increase of 7% compared to the same period in 2005. Although prescription growth continued, sales revenue growth is lower due to a combination of pipeline de-stocking in 2006 (as the new higher dose strengths launch stocks shipped to wholesalers in December 2005 were sold in Q1 2006), pipeline stocking in 2005 and higher sales deductions.
FOSRENOL was launched in Austria, Ireland, Sweden and Denmark in December 2005 and in South Korea in June 2006. On July 11, 2006 Shire received confirmation that FOSRENOL had been recommended for approval through the Mutual Recognition Procedure in 11 markets in Europe. On September 8, 2006 FOSRENOL was approved in Germany and on September 21, 2006 it was approved in the UK. In Europe FOSRENOL has also been approved in Sweden, Portugal, Italy, Poland, Austria, Finland, Czech Republic, Denmark, France, Belgium, Cyprus, Greece, Luxembourg, Netherlands, Ireland, Iceland, Malta and Estonia. Launches will continue throughout Q4 2006 and 2007 in the EU, subject to finalization of national licensing and conclusion of pricing re-imbursement negotiations.
48
Foreign exchange effect
As many of the Company’s sales revenues are earned in currencies other than US dollars (primarily Canadian Dollars, Pounds sterling, Swedish kronor and Euros), revenue growth reported in US dollars includes the impact of translating the sales made in a local currency, into US dollars. The table below shows the effect of foreign exchange translations on the revenue growth of the key affected products as well as the underlying performance of key products in their local currency:
| | | 9 months to
September 30,
2006 sales in
US dollars
$M | | 9 months to
September 30,
2006 sales
growth in local
currency | | Impact of
translation
to US
dollars | | 3 months to
September 30,
2006 sales
growth in US
dollars |
| |
| |
| |
|
| |
|
|
| XAGRID sales in Euros | | 23.6 | | +8 | | -1 | % | | +7 | % |
| XAGRID sales in Pounds sterling | | 15.9 | | +13 | | -2 | % | | +11 | % |
| CALCICHEW sales in Pounds sterling | | 29.8 | | +18 | | -2 | % | | +16 | % |
| REMINYL / REMINYL XL sales in Pounds sterling | | 13.6 | | +68 | | -1 | % | | +67 | % |
| |
| |
| |
|
| |
|
|
| |
| Notes |
| Revenue growth analysis does not include sales of: |
| | • | ADDERALL XR sales of $5.6 million in Canadian Dollars due to the fact that sales of ADDERALL XR in Canada were suspended for most of 2005, affecting comparative data; and |
| | • | REPLAGAL sales of $77.2 million in Euros and Swedish kronor. There is no comparative data for REPLAGAL as it was acquired with TKT in July 2005. |
Royalties
Royalty revenue remained stable at $181.8 million for the nine months to September 30, 2006 (2005: $181.1 million). The following table provides an analysis of Shire’s royalty income:
| | | 9 months to
September 30,
2006
$’M | | 9 months to
September 30,
2005
$’M | | change
% |
| |
| |
| |
|
| 3TC | | 114.3 | | 119.5 | | -4 |
| ZEFFIX | | 25.4 | | 22.0 | | +15 |
| Others | | 42.1 | | 39.6 | | +6 |
| |
| |
| |
|
| Total | | 181.8 | | 181.1 | | 0 |
| |
| |
| |
|
3TC
Royalties from sales of 3TC for the nine months to September 30, 2006 were $114.3 million (2005: $119.5 million).
Shire receives royalties from GSK on worldwide 3TC sales. GSK’s worldwide sales of 3TC for the nine months to September 30, 2006 were $870 million, a decrease of 4% compared to the same period in 2005 (2005: $907 million). The nucleoside analogue market for HIV has continued to grow, however competitive pressures within the market have increased.
ZEFFIX
Royalties from sales of ZEFFIX for the nine months to September 30, 2006 were $25.4 million (2005: $22.0 million).
Shire receives royalties from GSK on worldwide ZEFFIX sales. GSK’s worldwide sales of ZEFFIX for the nine months to September 30, 2006 were $220 million, an increase of 15% compared to the same period in 2005 (2005: $191 million). This increase was primarily due to strong growth in the Chinese, Japanese and Korean markets.
Other
49
Other royalties are primarily in respect of REMINYL and REMINYL XL (now marketed as RAZADYNE and RAZADYNE ER in the US), a product marketed worldwide by Janssen, an affiliate of Johnson & Johnson, with the exception of the United Kingdom and the Republic of Ireland where Shire has the exclusive marketing rights.
Sales of the REMINYL/RAZADYNE range, for the symptomatic treatment of mild to moderately severe dementia of the Alzheimer’s type, continue to grow in the Alzheimer’s market.
In June 2006 Janssen and Synaptec filed suit against Barr for infringement of their patent rights relating to RAZADYNE ER as a result of Barr filing an ANDA with the FDA for RAZADYNE ER. No court date has been set. Barr and other generics have filed ANDAs with the FDA as regards RAZADYNE and Janssen and Synaptec have filed suit against some of those ANDA filers. The court date for these proceedings is June 2007.
Cost of product sales
For the nine months to September 30, 2006 the cost of product sales amounted to 17% of product sales (2005: 15%). The decrease in gross margin is primarily due to the addition of REPLAGAL to Shire’s product portfolio following the acquisition of TKT. REPLAGAL’s cost of product sales includes acquired inventories, which in accordance with US GAAP were valued at fair value as part of the TKT purchase price allocation. For the nine months to September 30, 2006 the cost of product sales for REPLAGAL included a $47.0 million adjustment, in respect of the acquired inventory. This fair value adjustment increased Shire’s cost of product sales as a percentage of product sales by 4%. All REPLAGAL inventories acquired as part of the TKT acquisition have now been consumed.
Research and development (R&D)
R&D expenditure increased from $253.2 million in the nine months to September 30, 2005 to $304.0 million for the nine months to September 30, 2006. The increase was primarily due to the addition of two significant R&D projects following the acquisition of TKT (ELAPRASE and GA-GCB) and upfront payments made of $25 million to Duramed and $6 million to Warren of which $0.5 million was satisfied by a payment made and expensed to R&D in the three months ended June 30, 2006 and the remaining $5.5 million was paid and expensed to R&D in the three months ended September 30, 2006.
Expressed as a percentage of total revenues, R&D expenditure was 23% for the nine months to September 30, 2006 (2005: 22%). In both periods payments have been made to New River of $50 million for in-licensing NRP104; these have been expensed in accordance with the Company’s accounting policy. The payments to New River, Duramed and Warren in the nine months to September 30, 2006 represented 4%, 2% and 0.4% of total revenues respectively. In the nine months to September, 2005 the payment to New River represented 4% of total revenues.
Selling, general and administrative (SG&A) expenses
SG&A expenses increased from $533.7 million in the nine months to September 30, 2005 to $666.5 million in the nine months to September 30, 2006, an increase of 25%. This increase is primarily related to the promotion and launch of DAYTRANA (including an increase in the ADHD sales force) and the recruitment of new US sales forces for GI (to launch MESAVANCE and HGT (to launch ELAPRASE).
As a percentage of product sales, SG&A expenses excluding depreciation and amortisation was 54% (2005: 52%), reflecting the recruitment of the new US sales teams prior to the launch of their associated products.
| 9 months to September 30, | | 2006
$’M | | (1)Adjusted 2005
$’M | | change
% |
| |
| |
| |
|
| Sales costs | | 171.4 | | 142.8 | | +20 |
| Marketing costs | | 249.5 | | 191.5 | | +30 |
| Other SG&A costs | | 173.3 | | 149.3 | | +16 |
| |
| |
| |
|
| | | 594.2 | | 483.6 | | +23 |
| Depreciation and amortization(1) | | 72.3 | | 50.1 | | +44 |
| |
| |
| |
|
| Total SG&A costs | | 666.5 | | 533.7 | | +25 |
| |
| |
| |
|
(1) Excludes depreciation from manufacturing plants of $3.5 million (2005: $2.7 million) which is included in cost of product sales.
50
Depreciation and amortization
The depreciation charge for the nine months to September 30, 2006 was $31.1 million (2005: $20.2 million including a write-down of property, plant and equipment of $6.1 million). Amortization charges, including the amortization on acquired products, were $41.2 million for the nine months to September 30, 2006 (2005: $29.9 million). The increase in both depreciation and amortization is primarily due to the increase in the asset base as a result of the TKT acquisition.
Intangible asset impairment
There were no intangible asset impairment charges for the nine months to September 30, 2006. The intangible asset impairment charge for the nine months to September 30, 2005 of $3.0 million arose as a result of the economic value and strategic worth of the product concerned being less than its carrying value.
Integration costs
For the nine months to September 30, 2006 the Company incurred $3.9 million of costs associated with the integration of the TKT business into Shire (2005: $3.5 million). This included retention payments for key staff of $2.0 million, IT costs of $0.8 million and other costs of $1.1 million.
Gain on sale of product rights
For the nine months to September 30, 2006, the Company recognized a pre-tax gain of $63.0 million (2005: $nil), on the disposal of ADDERALL to Duramed for $63.0 million in cash.
Interest income
For the nine months to September 30, 2006 the Company received interest income of $36.8 million (2005: $27.9 million).
In the nine months to September 30, 2006 interest income comprised $30.3 million of interest received on cash balances together with $6.5 million of interest recognized following the repayment by IDB of a $70.6 million loan (of the $8.1 million of interest received from ID Biomedical Corporation (IDB) in 2006, $1.6 million was recognized in previous periods). Interest received on cash balances is higher than in the nine months to September 30, 2005 due to higher interest rates in the nine months to September 30, 2006 being partially offset by the interest foregone on net TKT acquisition payments of $1.1 billion. In the nine months to September 30, 2005 interest income primarily related to interest received on Shire’s cash balances.
Interest expense
For the nine months to September 30, 2006 the Company incurred interest expense of $19.1 million (2005: $4.7 million). In 2006, this expense primarily relates to a provision for interest, which may be awarded by the Court in respect of amounts due to those ex-TKT shareholders who have requested appraisal of the acquisition consideration payable for their TKT shares. For the nine months to September 30, 2005 the expense primarily related to a bridging loan to finance the TKT acquisition together with a provision for interest which may be awarded by the court in respect of amounts due to those ex-TKT shareholders who have requested appraisal of the acquisition consideration payable for their TKT shares for the period subsequent to the acquisition of TKT.
The trial date for the appraisal rights litigation has been set for April 23, 2007.
Taxation
The effective rate of tax for the nine months to September 30, 2006 was 28%. In respect of the nine month period to September 30, 2005, the tax charge was calculated using the expected effective rate for the period of 26% and was adjusted for the effect of the non-deductible write-off of in-process R&D, resulting in an effective tax rate for the period of -13%. The lower expected effective rate of tax in 2005 followed the conclusion of a routine tax audit. At September 30, 2006 net deferred tax assets of $107.4 million were recognized (December 2005: $116.2 million).
Equity in earnings/(losses) of equity method investees
Net earnings of equity method investees of $5.5 million were recorded for the nine months to September 30, 2006 (2005: $0.1 million). This comprised earnings of $4.8 million from the 50% share of the antiviral commercialization partnership with GSK in Canada (2005: $3.9 million), and $0.7 million being the Company’s share of earnings in the GeneChem and EGS Healthcare Funds (2005: loss of $3.8 million).
51
Discontinued operations
During the nine months to September 30, 2006, IDB repaid $70.6 million, being the injectable flu development tranche of the $100.0 million development loan facility provided to IDB as part of their acquisition of Shire’s vaccine business. The repayment followed GSK’s acquisition of IDB, after which IDB was provided with resources by GSK to fund the early repayment of the injectable flu tranche. The $29.4 million pipeline development tranche of the loan facility is still outstanding.
At the time of the disposal, a provision of $70.0 million was charged to discontinued operations on the basis that there was no certainty of recovery of this amount. The $70.0 million provision was allocated against all of the pipeline development tranche ($29.4 million) and against $40.6 million of the $70.6 million injectable flu development tranche. Accordingly, a gain on disposition of discontinued operations of $40.6 million (2005: $4.1 million) was recognized on repayment of the loan by IDB.
The repayment of the $70.6 million injectable flu tranche had no tax effect.
Liquidity and capital resources
General
The Company’s funding requirements depend on a number of factors, including its development programs; corporate, business and product acquisitions; the level of resources required for the expansion of marketing capabilities as the product base expands; increases in accounts receivable and inventory which may arise as sales levels increase; competitive and technological developments; the timing and cost of obtaining required regulatory approvals for new products; the timing and quantum of tax payments and dividends, and the continuing cash generated from sales of Shire’s key products.
An important part of Shire’s business strategy is to protect its products and technologies through the use of patents, proprietary technologies and trademarks, to the extent available. The Company intends to defend its intellectual property, and as a result may need cash for funding litigation expenses incurred.
The Company ordinarily finances its activities through cash generated from operating activities, private and public offerings of equity and debt securities and the proceeds of asset or investment disposals.
In connection with the acquisition of TKT, Shire entered into a Multicurrency Revolving Facilities Agreement with ABN AMRO Bank N.V., Barclays Capital, Citigroup Global Markets Limited, HSBC Bank plc and The Royal Bank of Scotland plc on June 15, 2005. The Facilities Agreement includes two credit facilities: (i) a multicurrency three year revolving facility in an aggregate amount of $500 million (“Facility A”); and (ii) a 364 day revolving loan facility in an aggregate amount of $300 million. In June 2006, the 364 day revolving loan facility in an aggregate amount of $300 million (“Facility B”), was extended for a further 364 days. In October 2006 Facility B was reduced to $200 million. At September 30, 2006, there are no amounts drawn down under these facilities.
Shire anticipates that its operating cash flow together with available cash, cash equivalents and short-term investments and the above mentioned debt facility will be sufficient to meet its anticipated future operating expenses, the remaining costs of acquiring TKT, capital expenditures and debt service and lease obligations as they become due over the next twelve months.
If the Company seeks to acquire other businesses, it expects to fund these acquisitions from existing cash resources, the debt facility discussed above and possibly through new borrowings and the issue of new equity if necessary.
Sources and uses of cash
The following table provides an analysis of the Company’s gross and net cash funds (excluding restricted cash), as at September 30, 2006 and December 31, 2005:
52
| | | September 30, | | December 31, | |
| | | 2006 | | 2005 | |
| | | $’M | | $’M | |
| |
| |
|
|
| Cash and cash equivalents | | 955.2 | | 656.5 | |
| Short-term investments | | - | | 6.9 | |
| |
| |
|
|
| Gross cash funds | | 955.2 | | 663.4 | |
| Total debt | | - | | (0.1 | ) |
| |
| |
|
|
| Net cash funds | | 955.2 | | 663.3 | |
| |
| |
|
|
Cash flow activity
Net cash provided by operating activities for the nine months to September 30, 2006 was $342.9 million compared to $226.6 million for the nine months to September 30, 2005. The increase in cash generation is primarily due to working capital movements.
Net cash provided by investing activities was $8.3 million in the nine months to September 30, 2006. The proceeds of $70.6 million from the repayment of loans made to IDB and receipt of $63 million in relation to the sale of product rights were offset by capital expenditure on property, plant and equipment of $71.2 million and on intangibles of $52.8 million, which mainly relates to $50.0 million paid to Noven on approval of DAYTRANA.
Capital expenditure on property, plant and equipment included $25.1 million on IT projects at the Wayne, Pennsylvania US headquarters; $7.8 million on building improvements and $8.9 million on IT projects at the Basingstoke, UK headquarters; $9.9 million of construction work at Shire US Manufacturing Inc. in Owings Mills, Maryland; and $15.1 million on leasehold improvements, IT and equipment at Shire HGT in Cambridge, Massachusetts.
Net cash used in investing activities was $795.1 million in the nine months to September 30, 2005. Proceeds of $60 million for the redemption by IDB of its subscription receipts and $351.3 million of decreases in short-term investments were offset primarily by the cash paid on the purchase of TKT (net of cash and cash equivalents acquired) of $1,099.6 million, loans made to IDB of $43.2 million, capital expenditure on property, plant and equipment of $57.6 million and a $19.0 million final payment in respect of the acquisition of the exclusive commercialization rights to REMINYL in the UK and Republic of Ireland in 2004. Capital expenditure on property, plant and equipment included $22.8 million leasehold building improvements and $9.8 million on computer equipment for the new Shire US headquarters at Wayne, Pennsylvania; $6.2 million on software purchases at the Basingstoke, UK headquarters; $9.7 million of factory construction work and $2.4 million of plant equipment at Shire Manufacturing Inc. in Owings Mills, Maryland.
Net cash used in financing activities was $57.7 million for the nine months to September 30, 2006. This was primarily due to the dividend payment of $22.6 million and purchases of treasury stock of $68.3 million being offset by the proceeds of $33.3 million from the exercise of employee stock options. Net cash provided by financing activities was $13.8 million for the nine months to September 30, 2005 due to inflows of $30.4 million from the exercise of employee stock options (including tax benefits) being offset by the dividend payment of $19.1 million.
Obligations and commitments
TKT shareholders seeking appraisal rights
As at September 30, 2006, appraisal rights had been asserted in respect of approximately 11.3 million shares of TKT common stock. For further information see Part II: Legal Proceedings. As at September 30, 2006 the Company recorded a liability of $420.0 million based on the merger consideration of $37 per share for the 11.3 million shares outstanding at that time plus a provision for interest of $25.8 million that may be awarded by the Court. For every $1 increase/decrease in the merger consideration applicable to those TKT shareholders who have asserted appraisal rights, the total estimated purchase price would increase/decrease by approximately $11.3 million. In April 2006, Shire filed a motion for partial summary judgment in respect of approximately 8 million shares, claiming that the petitioners were not entitled to assert appraisal rights in connection with such shares.
To the extent that petitioners’ demands were validly asserted in accordance with the applicable requirements of Delaware law and the former holders perfect their rights thereunder, such former holders will be entitled to receive the fair value of those shares as determined by the Delaware Court of Chancery. Until such time as the appraisal process is complete, the Company is unable to determine the extent of its liability. A trial date has been set for April 23, 2007.
53
Contractual obligations
At September 30, 2006 the Company’s contractual obligations had altered from those disclosed in the Table of Contractual Obligations in the Company’s 2005 Form 10-K as follows:
DAYTRANA
In connection with the Company’s acquisition in 2003 from Noven of the worldwide sales and marketing rights to DAYTRANA, Shire has an obligation to pay Noven up to $75 million, contingent on future sales performance. DAYTRANA received final regulatory approval from the US Food and Drug Administration (FDA) on April 6, 2006 and as a result Shire paid a $50 million milestone to Noven, which has been capitalized. Amortization of this amount, together with the upfront milestone payment of $25 million made in 2003 commenced on the date of launch and will continue over the useful economic life of the product.
NRP104
In January 2005, Shire entered into an agreement with New River to collaborate in developing, manufacturing, marketing and selling NRP104 in the US. In the rest of the world, Shire acquired the license to develop and commercialize NRP104, in return for which New River will receive a low double-digit royalty.
Under the terms of the agreement, the parties will collaborate on NRP104 development, manufacturing, marketing and sales in the US. New River will be financially and operationally responsible for clinical and manufacturing development. Shire will book the product sales and New River will supply up to 25% of the sales effort under a co-promotion right. Shire is obligated to give NRP104 marketing and promotional priority over its other oral ADHD stimulants should NRP104’s label contain a claim that it has decreased potential for abuse or overdose protection. Shire paid an initial sum of $50 million on signing and a further $50 million was paid to New River following acceptance of the filing of a New Drug Application (NDA) by the FDA in January 2006.
If NRP104 is approved with a Schedule III, IV or V classification or is unscheduled (“favorable scheduling”), Shire will pay New River a $300 million milestone payment. US operating profit will be divided as follows: Shire will retain 75% of profits for the first two years following launch, and the parties will share the profits equally thereafter.
In the event that NRP104 receives a final Schedule II classification, no milestone payment will be payable by Shire to New River upon approval. Division of profits will be calculated under an alternative profit sharing scheme. New River’s share of U.S. product profits for the first two years will be at least 25%, though it may increase to a value determined by a preset sales based formula; for following years, it will be at least 50%, though it may increase to a value determined by a preset sales based formula thereafter. These formulas, which include yearly threshold sales, were included in an 8-K filed with the SEC on October 10, 2006.
If NRP104 is classified as Schedule II on approval and then gets favorable scheduling within one year of the first commercial sale, Shire will pay New River a $200 million milestone payment; if favorable scheduling occurs by the third anniversary, the milestone payment will be $100 million. Upon favorable scheduling being achieved under each of these scenarios, the profit sharing formula reverts to that applicable to favorable scheduling.
In addition, New River will be entitled to a $100 million milestone payment at the end of the first calendar year in which cumulative worldwide net sales of all collaboration products during that calendar year exceed $1 billion. A $5 million milestone payment is payable following the first commercial sale in specified European countries. Shire intends to capitalize and amortize any milestone payments over the life of the product.
Shire is entitled to terminate the agreement until 30 days following approval of NRP104. If Shire terminates before regulatory approval, no payment would be due to Shire. If Shire terminates after approval and NRP104 has received a favorable scheduling assignment, no payment would be due to Shire. If the approved NRP104 has received a Schedule II classification, Shire would be entitled to a $50 million termination payment, payable in cash, New River common stock, or an unsecured, 5-year promissory note, as will be agreed upon by Shire and New River.
54
Women’s Health Products
Shire and Duramed, a subsidiary of Barr, entered into an agreement related to Duramed’s transvaginal ring technology that will be applied to at least five women’s health products, as well as a license to Duramed’s currently marketed oral contraceptive, SEASONIQUE. This agreement became effective on September 6, 2006.
Under this agreement, Shire will reimburse Duramed for development expenses incurred going forward up to a maximum of $140 million over eight years.
Development expenditure due for reimbursement for the nine months ended September 30, 2006, totalled $0.7 million. At September 30, 2006, the maximum future reimbursement for Duramed incurred development expenditure is $139.3 million.
Tissue Protective Cytokine (TPC) development rights
In connection with the Company’s licence of TPC rights in non-nervous system indications from Warren, the Company has committed to making payments on achievement of certain milestones. The Company is not required to make any payments to Warren upon regulatory approval of the first product for the first indication. However, it is obligated to make milestone payments to Warren of $25 million upon regulatory approval in up to five subsequent major indications.
FOSRENOL patent rights
In connection with the Company’s purchase of the global patents for FOSRENOL from AnorMED in 2004, the Company became obligated to pay $3 million to AnorMED following the approval of FOSRENOL in Germany on September 8, 2006 and $3 million following the approval of FOSRENOL in the UK on September 21, 2006. These amounts have been have been capitalized at September 30, 2006 and were paid on October 10, 2006. The only remaining commitment to AnorMED is $6 million due upon receipt of regulatory approval in Japan.
R&D and sales milestones
As at September 30, 2006 the Company had commitments of $76.2 million (December 31, 2005: $18.0 million) payable on achievement of specified milestones and fees payable for products under development in-licensed from third parties, of which $2.6 million could be paid in 2006.
Contract manufacturing
As at September 30, 2006 the Company had committed to pay approximately $51.7 million in respect of contract manufacturing over the next twelve months.
Investment commitments
The Company has undertaken to subscribe for interests in companies and partnerships for amounts totaling $16.2 million (December 31, 2005: $25.2 million) of which $0.8 million is committed to be paid in 2006 and a further $15.4 million could be payable in 2006, depending on the timing of capital calls.
Capital commitments
At September 30, 2006, the Company has committed to spend $19.3 million in 2006 in respect of capital commitments. This relates to various capital projects including $4.4 million for the ongoing expansion of the Company’s headquarters in Basingstoke, UK and the expansion and modification of its two manufacturing facilities at Owings Mills, Maryland and Cambridge, Massachusetts.
Critical accounting estimates
The preparation of interim financial statements, in conformity with US GAAP and SEC regulations for interim reporting, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(i) Stock-based compensation cost
During the nine months to September 30, 2006 the Company adopted SFAS No. 123R, which requires the Company to measure stock-based compensation cost at the grant date, based on the estimated fair value of the award, and recognize the cost as expense on a straight-line basis (net of estimated forfeitures) over the employee requisite service
55
period. Management estimates the fair value of stock options and SARs without market-based performance conditions using a Black-Scholes valuation model and awards with market based performance conditions are valued using a binomial valuation model.
For stock awards granted in the nine months to September 30, 2006 and 2005 the following assumptions were used to estimate the fair value of stock-based compensation, all of which involve estimates and judgments which the Company considers critical accounting estimates, and require the Company to use information from external sources:
| Nine months to September 30, | | 2006 | | 2005 |
| |
| |
|
| Risk-free interest rate | | 4.84% | | 4.02% |
| Expected dividend yield | | 0.5% | | 0.6% |
| Expected life(1) | | 4 years | | 7 years |
| Weighted average expected volatility | | 30% | | 49% |
| Forfeiture rate | | 5% | | 5% |
(1) Stock awards made in the six months to June 30, 2006 expire 5 years from the date of issue (2005: 10 years).
(ii) Sales Deductions
Sales deductions consist of statutory rebates to state Medicaid and other government agencies, contractual rebates with health-maintenance organizations (HMOs), product returns, sales discounts (including trade discounts and distribution service fees), wholesaler chargebacks, and allowances for the coupon sampling program. These deductions are recorded as reductions to revenue in the same period as the related sales with estimates of future utilization derived from historical experience adjusted to reflect known changes in the factors that impact such reserves.
The Company accounts for these sales deductions in accordance with EITF Issue No. 01-9,Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products), and SFAS No. 48,Revenue Recognition When Right of Return Exists, as applicable.
The Company has the following significant categories of sales deductions, all of which involve estimates and judgments which the Company considers to be critical accounting estimates, and require the Company to use information from external sources:
Medicaid and HMO Rebates
Statutory rebates to state Medicaid agencies and contractual rebates to HMOs under managed care programs are based on statutory or negotiated discounts to the selling price. Medicaid rebates generally increase as a percentage of the selling price over the life of the product (if prices increase faster than inflation).
As it can take up to six months for information to reach the Company on actual usage of the Company’s products in managed care and Medicaid programs and on the total discounts to be reimbursed, the Company maintains reserves for amounts payable under these programs relating to sold products.
The amount of the reserve is based on historical experience of rebates, the timing of payments, the level of reimbursement claims, changes in prices (both normal selling prices and statutory or negotiated prices), changes in prescription demand patterns, and the levels of inventory in the distribution channel.
Shire’s estimates of the level of inventory in the distribution channel are based on product-by-product inventory data provided by wholesalers (including data provided by wholesalers as part of the new ‘fee for service’ agreements – see Shire’s Annual Report on Form 10-K for the year to December 31, 2005 Item 1: Business - Manufacturing and Distribution - Material Customers for further information) and third-party prescription data (such as IMS Health National Prescription Audit data).
Revisions or clarification of guidelines from Centers for Medicare and Medicaid Services (CMS) related to state Medicaid and other government program reimbursement practices with retroactive application can result in changes to management’s estimates of the rebates reported in prior periods. However, since the prices of the Company’s products are fixed at the time of sale and the quantum of rebates is therefore reasonably determinable at the outset of each transaction, these factors would not impact the recording of revenues in accordance with generally accepted accounting principles.
The accrual estimation process for Medicaid and HMO rebates involves in each case a number of interrelating assumptions, which vary for each combination of product and Medicaid agency or HMO. Accordingly, it would not be meaningful to quantify the sensitivity to change for any individual assumption or uncertainty. However, Shire does not believe that the effect of uncertainties, as a whole, significantly impacts the Company’s financial condition or results of operations.
56
Accruals for Medicaid and HMO rebates were $105.4 million at December 31, 2005, $99.4 million in 2004 and $59.3 million in 2003, or 8%, 9% and 6%, respectively, of net product sales.
Accruals for Medicaid and HMO rebates were $126.2 million as at September 30, 2006, or 8% of net product sales for the preceding twelve month period.
Product Returns
The Company typically accepts customer product returns in the following circumstances: a) expiration of shelf life, b) product damaged while in the possession of Shire, or c) under sales terms that allow for unconditional return (guaranteed sales).
Shire estimates the proportion of recorded revenue that will result in a return by considering relevant factors, including:
- past product returns activity;
- the duration of time taken for products to be returned;
- the estimated level of inventory in the distribution channel;
- product recalls and discontinuances;
- the shelf life of products;
- the launch of new drugs or new formulations; and
- the loss of patent protection or new competition.
Shire’s estimate of the level of inventory in the distribution channel is based on product-by-product inventory data provided by wholesalers, third-party prescription data and, for some product return provisions, market research of retail pharmacies.
Returns for new products are more difficult for the Company to estimate than for established products. For shipments made to support the commercial launch of a new product (which are typically guaranteed sales), the Company cannot reliably estimate expected returns, and the Company’s policy is therefore to defer recognition of the sales revenue until there is evidence of end-patient acceptance (primarily third-party prescription data), in accordance with SAB No. 104,Revenue Recognition. For shipments after launch under standard terms (ie not guaranteed sales), the Company’s initial estimates of sales return accruals are primarily based on the historical sales returns experience of similar products shortly after launch. Once sufficient historical data on actual returns of the product are available, the returns provision is based on this data and any other relevant factors as noted above.
The accrual estimation process for product returns involves in each case a number of interrelating assumptions, which vary for each combination of product and customer. Accordingly, it would not be meaningful to quantify the sensitivity to change for any individual assumption or uncertainty. However, Shire does not believe that the effect of uncertainties, as a whole, significantly impacts the Company’s financial condition or results of operations.
Provisions for product returns were $31.8 million at December 31, 2005, $22.5 million in 2004 and $8.3 million in 2003, or 2%, 2% and 1%, respectively, of net product sales.
Provisions for product returns were $29.5 million as at September 30, 2006, or 2% of net product sales for the preceding twelve month period.
Sales Coupon accrual
For certain products, primarily ADDERALL XR, the Company uses coupons as a form of sales incentive. These coupons reimburse part or all of the cost of the first prescription. Each coupon can only be used once and coupons typically expire three to 15 months after the date of issuance. The Company’s management calculates an accrual for the estimated value of coupons that will be redeemed against sold products, based on the rebate value per coupon, the timing and volume of coupon distributions, the estimated level of inventory in the distribution channel and expected coupon redemption rates, using historical trends and experience.
Shire’s estimate of the level of inventory in the distribution channel is based on product-by-product inventory data provided by wholesalers and third-party prescription data.
Shire believes that historical redemption rates, adjusted for known changes in coupon programs (such as length of coupon life and redemption conditions) are an appropriate basis for predicting future redemption rates. For coupon programs open at December 31, 2005, the redemption rates assumed by Shire range between 15% and 30% of coupons distributed (depending on the life of the coupons). A one-percentage point increase in estimated coupon redemption rates would have increased the provision at December 31, 2005 by $0.1 million.
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At December 31, 2005 the accrual for coupon redemptions was $5.2 million (2004: $15.9 million, 2003: $4.1 million). The accrual levels in each year fluctuate according to the timing and volume of coupon distributions, in addition to changes in estimated redemption rates.
At September 30, 2006 the accrual for coupon redemption was $3.6 million. A one-percentage point increase in estimated coupon redemption rates would increase the provision at September 30, 2006 by $0.1 million.
For rebates, returns and sales coupons the actual experience and the level of these deductions to revenue may deviate from the estimate. Shire reviews its estimates every quarter and may be required to adjust the estimate in a subsequent period. Historically, actual payments have not varied significantly from the reserves provided.
(iii)Inventory acquired through the acquisition of TKT
Inventory acquired through the acquisition of TKT has been fair valued in accordance with Statement of Financial Accounting Standard (SFAS) No. 141 “Business Combinations” as follows:
- Finished goods and merchandise at estimated selling prices less the sum of (a) costs of disposal and (b) areasonable profit allowance for the selling effort of the acquiring entity;
- Work in process at estimated selling prices of finished goods less the sum of (a) costs to complete, (b) costs ofdisposal, and (c) a reasonable profit allowance for the completing and selling effort of the acquiring entity based onprofit for similar finished goods.
The Company’s management assumed that a “reasonable profit allowance for the selling effort of the acquiring entity” would be 3% of sales proceeds (expected at the acquisition date). This is due to the minimal sales effort required by Shire as acquiror to realize sales of the acquired inventory, given the small size of the existing prescription population to whom specialized physicians prescribe REPLAGAL, the frequency and duration of treatment required, and low levels of patient switching, together with the low cost and complexity of distribution. The relevance of this assumption is that it has an impact on the recorded cost of product sales for acquired REPLAGAL inventory. For every one percentage point increase in the profit allowance percentage for the selling effort, our cost of product sales in the year to December 31, 2005 would have reduced by approximately $0.4 million, and in the nine months to September 30, 2006 would have reduced by approximately $0.3 million.
The valuation of acquired work in process required the Company’s management to estimate the level of completion reached at the acquisition date. This required the exercise of judgment in ascribing value creation to different phases of a complex biological manufacturing process. The relevance of this estimate is that it has an impact on the recorded cost of product sales for acquired REPLAGAL inventory. For every one percentage point increase in the assumed percentage level of completion, our cost of product sales in the nine months to September 30, 2006 would have increased by $0.5 million.
The fair value of inventory is based on information at the date of acquisition and the expectations and assumptions that have been deemed reasonable by the Company’s management. No assurance can be given, however, that the underlying assumptions or events associated with inventory will occur as projected. For these reasons, among others, the actual completion costs, disposal costs and proceeds associated with acquired inventory may vary from those forecasted. As each estimate was made in the context of the conditions that existed at the TKT acquisition date, they are not expected to change from period to period.
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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the Group’s interest rate or market risk of investments exposure since December 31, 2005. The acquisition of TKT has increased the Group’s exposure to foreign exchange market risk due to an increase in the amount of non US Dollar net assets and earnings. This is being managed in line with the Company’s existing treasury policies. Item 7A of Shire’s Annual Report on Form 10-K for the year ended December 31, 2005 contains a detailed discussion of the Group’s market risk exposure in relation to interest rate market risk and foreign exchange market risk.
ITEM 4. Controls and Procedures
Shire’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as at September 30, 2006. The Company’s management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature can provide only reasonable assurance regarding management’s control objectives. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective at the reasonable level of assurance for gathering, analyzing and disclosing the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms.
There has been no change in the Company’s internal control over financial reporting that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are various legal proceedings brought by and against Shire that are discussed in Shire’s Annual Report on Form 10-K for the year to December 31, 2005. Material updates to the proceedings discussed in Shire’s Annual Report on Form 10-K and its Quarterly Report on Form 10-Q for the financial period ended June 30, 2006 are described below. There is no assurance that the Group will be successful in any of these proceedings and if it is not, there may be a material impact on the Group’s results and financial position.
ADDERALL XR
(i) Barr Laboratories, Inc.
On August 14, 2006, Shire and Barr announced that all pending litigation in connection with Barr’s ANDA and its attempt to market generic versions of Shire’s ADDERALL XR had been settled. As part of the settlement agreement, Barr entered into consent judgments and agreed to permanent injunctions confirming the validity and enforceability of Shire’s ‘819, ‘300 and ‘768 Patents. Barr has also admitted that any generic product made under its ANDA would infringe the ‘768 patent. Under the terms of the settlement, Barr will not be permitted to market a generic version of ADDERALL XR in the United States until April 1, 2009, except for certain limited circumstances, such as the launch of another party’s generic version of ADDERALL XR. No payments to Barr are involved in the settlement agreement.
Shire and Duramed, a subsidiary of Barr have entered into an agreement related to Duramed’s transvaginal ring technology that will be applied to at least five women’s health products, as well as a license to Duramed’s currently marketed oral contraceptive, SEASONIQUE (levonorgestrel/ethinyl estradiol tablets 0.15 mg/0.03 mg and ethinyl estradiol tablets 0.01 mg) (the product development and license agreement). Shire has been granted exclusive rights to market these products in the five major European markets of the UK, Germany, France, Italy and Spain and other areas, excluding North America, and to the subsequent sales they will generate on a royalty-free basis. Duramed will market these products in North America. SEASONIQUE is already marketed in the United States by Duramed but Shire will need to obtain appropriate regulatory authorisations to commence marketing this product in Europe. Under this agreement, Shire made an initial payment of $25 million to Duramed on September 13, 2006 for previously incurred product development expenses, and will reimburse Duramed for development expenses incurred going forward up to a maximum of $140 million over eight years, with the amount capped at $30 million per annum.
The settlement agreement and the product development and license agreement became effective upon the Courts signing the last of the consent judgments for the litigations on September 6, 2006,
Duramed has agreed to purchase Shire’s ADDERALL (immediate-release mixed amphetamine salts) product for $63 million. Shire reported the transaction to the FTC and the DOJ under the Hart Scott Rodino (HSR) Act on August 28, 2006. The HSR Act’s 30-day waiting period expired on September 27, 2006 and the transaction closed on September 29, 2006.
As required by law, Shire submitted to the FTC and the DOJ all of the agreements with Barr and it subsidiaries that were entered into on August 14, 2006. On October 3, 2006, the FTC notified Shire that it is reviewing the settlement agreement with Barr. While the Company has not received any requests for information regarding the settlement agreement, Shire intends on cooperating with the FTC should it receive any such requests. The FTC’s review should not be considered to be an indication that Shire or any other company violated any law, and Shire believes that the settlement agreement is in compliance with all applicable laws.
(ii) Teva Pharmaceuticals USA, Inc.
In February 2005, Shire was notified that Teva Pharmaceuticals, Inc. (Teva Pharmaceuticals) had submitted an ANDA under the Hatch-Waxman Act seeking permission to market its generic versions of the 10mg and 30mg strengths of ADDERALL XR prior to the expiration date of the Company’s ‘819 and ‘300 Patents. In June 2005, Shire was notified that Teva Pharmaceuticals had amended its ANDA to seek permission to market additional strengths of 5mg, 15mg and 20mg of its generic ADDERALL XR prior to the expiration of the ‘819 and ‘300 Patents. In January 2006, Shire received a third notice letter that Teva Pharmaceuticals had further amended its ANDA to seek permission to market the 25mg strength generic version of ADDERALL XR prior to the expiration of the ‘819 and ‘300 Patents. On March 2, 2006 Shire filed a lawsuit in the Eastern District of Pennsylvania against Teva Pharmaceuticals Industries Ltd. (Teva Israel) and Teva Pharmaceuticals USA, Inc. (Teva USA) (collectively Teva) alleging that all of Teva’s ANDA products infringe both the ‘819 and the ‘300 Patents. The lawsuit triggered a stay of FDA approval of Teva’s 25 mg strength product for 30 months from the date of the Company’s receipt of Teva’s third notice letter. There is no such stay with respect to Teva’s 5mg, 10mg, 15mg, 20mg and 30 mg strengths versions of ADDERALL XR. The case is currently in fact discovery. No trial date has been set.
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(iii) Andrx Pharmaceuticals, LLC
In September 2006, Shire was notified that Andrx Pharmaceuticals, LLC (Andrx) had submitted a ANDA under the Hatch-Waxman Act seeking permission to market its generic versions of the 5mg, 20mg, 25mg and 30 mg strengths of ADDERALL XR prior to the expiration date of the Company’s ‘819 and ‘300 patents. Shire is reviewing the notice letter from Andrx.
CARBATROL
(i) Nostrum Pharmaceuticals, Inc.
In August 2003, the Company was notified that Nostrum had submitted an ANDA under the Hatch-Waxman Act seeking permission to market its generic version of the 300mg strength of CARBATROL (Nostrum’s ANDA product) prior to the expiration date of the Company’s US patents for CARBATROL, US patent No. 5,912,013 (the ‘013 Patent) and US patent No. 5,326,570 (the ‘570 Patent). The notification alleges that the ‘013 and ‘570 Patents are not infringed by Nostrum’s ANDA product. On September 18, 2003, Shire filed suit against Nostrum in the United States District Court for the District of New Jersey alleging infringement of these two patents by Nostrum’s ANDA and ANDA product. The Company was seeking a ruling that Nostrum’s ANDA infringes the ‘013 and ‘570 Patents and should not be approved before the expiration date of the ‘013 and ‘570 Patents. The Company was also seeking an injunction to prevent Nostrum from commercializing its ANDA product before the expiration of the ‘013 and ‘570 Patents, damages in the event that Nostrum should engage in such commercialization, as well as its attorneys’ fees and costs. On January 23, 2004, the Company amended the complaint to drop the allegations with respect to the ‘013 Patent while maintaining the suit with respect to the ‘570 Patent. By way of counterclaims Nostrum is seeking a declaration that the ‘570 and ‘013 Patents are not infringed by Nostrum’s ANDA product. Nostrum also was seeking actual and punitive damages for alleged abuse of process by Shire. On July 12, 2004, the Court dismissed Nostrum’s abuse of process counterclaim for failure to state a claim upon which relief can be granted. On December 10, 2004, Nostrum filed a summary judgment motion seeking a declaration of non-infringement of the ‘570 Patent. Shire’s opposition to this motion was filed on January 14, 2005. The Court heard arguments with respect to Nostrum’s motion on July 15, 2005. At the conclusion of the hearing the Court denied Nostrum’s motion for summary judgment of non-infringement. On July 17, 2006 the Court entered an order staying discovery in this case until and through September 15, 2006. The parties have requested and the Court has granted a stay of discovery until and through December 29, 2006. No trial date has been set.
Nostrum may not launch a generic version of CARBATROL before it receives final approval of its ANDA from the FDA. The lawsuit triggered a stay of FDA approval of up to 30 months from Shire’s receipt of Nostrum’s notice letter. The 30 month stay expired on February 6, 2006. Following expiry of the stay, Nostrum could be in a position to market its 300mg extended-release carbamazepine product upon FDA final approval of its ANDA.
(ii) Corepharma LLC
On March 30, 2006 the Company was notified that Corepharma had filed an ANDA under the Hatch-Waxman Act seeking permission to market its generic version of carbamazepine extended release products in 100mg, 200mg and 300mg strengths prior to the expiration date of the ‘013 and the ‘570 Patents. Shire filed suit against Corepharma in the United States District Court for the District of New Jersey alleging infringement of the ‘570 Patent. The lawsuit triggered a stay of FDA approval of Corepharma’s generic products for 30 months from the date of Shire’s receipt of Corepharma’s notice of ANDA filing. No discovery schedule or trial date has been set.
Appraisal Rights
In connection with Shire’s merger with TKT, former holders of approximately 11.7 million shares of TKT common stock submitted written demands to the Delaware Court of Chancery for appraisal of these shares and, as a result, elected not to accept the $37 per share merger consideration. On October 10, 2005, at the request of one of the holders to tender 365,000 shares at the merger price of $37 per share, TKT filed a motion to dismiss the holder’s demand. On October 12, 2005, the Delaware Court of Chancery granted this motion, and the holder tendered the shares at the merger consideration of $37 per share. Therefore, as at September 30, 2006, former holders of approximately 11.3 million shares of TKT common stock maintained written demands for appraisal of these shares and have elected not to accept the $37 merger consideration. In November 2005, the Delaware Court of Chancery approved a consolidation order filed by TKT whereby actions brought by all petitioners have been consolidated as one case. In April 2006, Shire filed a motion for partial summary judgment in respect of approximately 8 million shares, claiming that the petitioners were not entitled to assert appraisal rights in connection with such shares.
To the extent that petitioners’ demands were validly asserted in accordance with the applicable requirements of Delaware law and the former holders perfect their rights
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thereunder, such former holders will be entitled to receive the fair value of these shares as determined by the Delaware Court of Chancery. The determination of fair value will be made excluding any element of value arising from the transaction, such as cost savings or business synergies. The Delaware Court of Chancery may ascribe a valuation to the shares that is greater than, less than or equal to $37 per share and may award interest on the amount determined in the appraisal process.
As at September 30, 2006, the Company had recorded a liability of $420.0 million based on the merger consideration of $37 per share for the 11.3 million shares outstanding at that time, plus a provision for interest of $25.8 million that may be awarded by the Court.
The total consideration for the acquisition of TKT, including amounts payable in respect of stock options and convertible securities, is approximately $1.6 billion at the merger price of $37 per share. This could change if Shire is required to pay a different amount of consideration in respect of the approximately 11.3 million shares for which holders have asserted appraisal rights. For every dollar increase/decrease in the merger consideration applicable to those TKT shareholders who have asserted appraisal rights, the total estimated purchase price would increase/decrease by approximately $11.3 million. Until such time as the appraisal process is complete, the Company is unable to determine the extent of its liability. The trial date has been set for April 23, 2007.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors set forth in the Company’s Form 10-K for the year ended December 31, 2005.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
Exhibits
| 3.1 | Articles of Association of Shire plc as adopted by special resolution on September 19, 2005(1). |
| |
| 10.1* | Settlement Agreement, dated August 14, 2006 by and between Shire Laboratories Inc. and Barr Laboratories, Inc. |
| | |
| 10.2* | Product Development and License Agreement, dated August 14, 2006 by and between Shire LLC and Duramed Pharmaceuticals, Inc. |
| | |
| 10.3* | Product Acquisition and License Agreement, dated August 14, 2006 by and among Shire LLC, Shire plc and Duramed Pharmaceuticals, Inc. |
| | |
| 31.1 | Certification of Matthew Emmens pursuant to Rule 13a – 14 under The Exchange Act. |
| |
| 31.2 | Certification of Angus Russell pursuant to Rule 13a – 14 under The Exchange Act. |
| |
| 32.1 | Certification of Matthew Emmens and Angus Russell pursuant to Section 906 of the Sarbanes – Oxley Act of 2002. |
| * | Certain portions of this exhibit have been omitted intentionally, subject to a confidential treatment request. A complete version of this agreement has been filed separately with the Securities and Exchange Commission. |
| | |
| (1) | Incorporated by reference to Exhibit 3.01 to Shire’s Form 8-K filed on November 25, 2005. |
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SHIRE PLC
(Registrant)
| Date: | | |
| November 6, 2006 | | |
| | | /s/ Matthew Emmens |
| | |
|
| | By: | Matthew Emmens |
| | | Chief Executive Officer |
| |
| Date: | | |
| November 6, 2006 | | |
| | | /s/ Angus Russel |
| | |
|
| | By: | Angus Russell |
| | | Chief Financial Officer |
Exhibit Index
| Exhibit No. | | Description |
| |
|
| 3.1 | | Articles of Association of Shire plc as adopted by special resolution on September 19, 2005(1). |
| |
| 10.1* | | Settlement Agreement, dated August 14, 2006 by and between Shire Laboratories Inc. and Barr Laboratories, Inc. |
| | | |
| 10.2* | | Product Development and License Agreement, dated August 14, 2006 by and between Shire LLC and Duramed Pharmaceuticals, Inc. |
| | | |
| 10.3* | | Product Acquisition and License Agreement, dated August 14, 2006 by and among Shire LLC, Shire plc and Duramed Pharmaceuticals, Inc. |
| | | |
| 31.1 | | Certification of Matthew Emmens pursuant to Rule 13a – 14 under The Exchange Act. |
| |
| 31.2 | | Certification of Angus Russell pursuant to Rule 13a – 14 under The Exchange Act. |
| |
| 32.1 | | Certification of Matthew Emmens and Angus Russell pursuant to Section 906 of the Sarbanes – Oxley Act of 2002. |
| * | Certain portions of this exhibit have been omitted intentionally, subject to a confidential treatment request. A complete version of this agreement has been filed separately with the Securities and Exchange Commission. |
| | |
| (1) | Incorporated by reference to Exhibit 3.01 to Shire’s Form 8-K filed on November 25, 2005. |
