10-K 1 q410k-123117.htm 10-K Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-K
x    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017 
o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-29630 
shirelogobluergba10.jpg
SHIRE PLC
(Exact name of registrant as specified in its charter)
Jersey (Channel Islands)
(State or other jurisdiction of incorporation or organization) 
98-0601486
(I.R.S. Employer Identification No.) 
 
 
Block 2, Miesian Plaza, 50-58 Baggot Street Lower, Dublin 2, Republic of Ireland 
(Address of principal executive offices and zip code)

+353 1 609 6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: 
Title of each class
Name of exchange on which registered
American Depositary Shares, each representing three Ordinary Shares 5 pence par value per share
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes x     No    o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act 
Yes o     No    x 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
Yes x     No    o 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference to Part III of this Form 10-K or any amendment to this Form 10-K. 
x 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer x    Accelerated filer o    Non-accelerated filer o Smaller reporting company o

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Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes o     No    x
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232,405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Yes x     No    o 
As of June 30, 2017, the last business day of the Registrant’s most recently completed second quarter, the aggregate market value of the ordinary shares, £0.05 par value per share of the Registrant held by non-affiliates was approximately $50.1 billion. This was computed using the average bid and asked price at the above date. 
As of February 12, 2018, the number of outstanding ordinary shares of the Registrant was 910,072,739.


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

Statements included herein that are not historical facts, including without limitation statements concerning future strategy, plans, objectives, expectations and intentions, projected revenues, the anticipated timing of clinical trials and approvals for, and the commercial potential of, inline or pipeline products, are forward-looking statements. Such forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, Shire’s results could be materially adversely affected. The risks and uncertainties include, but are not limited to, the following:

Shire’s products may not be a commercial success;
increased pricing pressures and limits on patient access as a result of governmental regulations and market developments may affect Shire’s future revenues, financial condition and results of operations;
Shire 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. Any disruption to the supply chain for any of Shire’s products may result in Shire being unable to continue marketing or developing a product or may result in Shire being unable to do so on a commercially viable basis for some period of time;
the manufacture of Shire’s products is subject to extensive oversight by various regulatory agencies. Regulatory approvals or interventions associated with changes to manufacturing sites, ingredients or manufacturing processes could lead to, among other things, significant delays, an increase in operating costs, lost product sales, an interruption of research activities or the delay of new product launches;
the nature of producing plasma-based therapies may prevent Shire from timely responding to market forces and effectively managing its production capacity;
Shire has a portfolio of products in various stages of research and development. The successful development of these products is highly uncertain and requires significant expenditures and time, and there is no guarantee that these products will receive regulatory approval;
the actions of certain customers could affect Shire’s ability to sell or market products profitably. Fluctuations in buying or distribution patterns by such customers can adversely affect Shire’s revenues, financial conditions 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;
Shire’s products and product candidates face substantial competition in the product markets in which it operates, including competition from generics;
Shire’s patented products are subject to significant competition from generics;
adverse outcomes in legal matters, tax audits and other disputes, including Shire’s ability to enforce and defend patents and other intellectual property rights required for its business, could have a material adverse effect on the Shire’s revenues, financial condition or results of operations;
Shire may fail to obtain, maintain, enforce or defend the intellectual property rights required to conduct its business;
Shire faces intense competition for highly qualified personnel from other companies and organizations;
failure to successfully execute or attain strategic objectives from Shire’s acquisitions and growth strategy may adversely affect the Shire’s financial condition and results of operations;
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;
a slowdown of global economic growth, or economic instability of countries in which Shire does business, could have negative consequences for Shire’s business and increase the risk of non-payment by Shire’s customers;
changes in foreign currency exchange rates and interest rates could have a material adverse effect on Shire’s operating results and liquidity;
Shire is subject to evolving and complex tax laws, which may result in additional liabilities that may adversely affect the Shire’s financial condition or results of operations;
if a marketed product fails to work effectively or causes adverse side effects, this could result in damage to Shire’s reputation, the withdrawal of the product and legal action against Shire;
Shire 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 Shire’s revenues, financial condition or results of operations;
Shire faces risks relating to the expected exit of the United Kingdom from the European Union;
Shire incurred substantial additional indebtedness to finance the Baxalta acquisition, which has increased its borrowing costs and may decrease its business flexibility;

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Shire's ongoing strategic review of its Neuroscience franchise may distract management and employees and may not lead to improved operating performance or financial results; there can be no guarantee that, once completed, Shire's strategic review will result in any additional strategic changes beyond those that have already been announced; and

a further list and description of risks, uncertainties and other matters can be found in this Annual Report on Form 10-K and in Shire’s subsequent Quarterly Reports on Form 10-Q, in each case including those risks outlined in “ITEM 1A: Risk Factors”, and in Shire’s subsequent reports on Form 8-K and other Securities and Exchange Commission filings, all of which are available on Shire’s website.

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.

Trademarks

We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our names, logos and website names and addresses are owned by us or licensed by us. We also own or have the rights to copyrights that protect the content of our solutions. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this Annual Report on Form 10-K are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, the Company's rights or the rights of the applicable licensors to these trademarks, service marks, trade names and copyrights.

This Annual Report on Form 10-K may include trademarks, service marks or trade names of other companies. The use or display of other parties’ trademarks, service marks, trade names or products is not intended to, and does not imply a relationship with, or endorsement or sponsorship of us by, the trademark, service mark or trade name.


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SHIRE PLC
2017 Form 10-K Annual Report 
Table of Contents
 
Page
  PART I
 
 
 
 
 
 
 
 
 
 


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PART I

ITEM 1: Business
 
General
 
Shire plc and its subsidiaries (collectively referred to as either “Shire” or the “Company”) is the leading global biotechnology company focused on serving people with rare diseases and other highly specialized conditions.

The Company has grown both organically and through acquisition, completing a series of major transactions that have brought therapeutic, geographic and pipeline growth and diversification. The Company will continue to conduct its own research and development (R&D) focused on rare diseases, as well as evaluate companies, products and pipeline opportunities that offer a strategic fit and have the potential to deliver value to all of the Company’s stakeholders, including patients, physicians, policy makers, payers, partners, investors and employees.

Strategy

Shire's mission is to develop and deliver breakthrough therapies for people around the world affected by rare diseases, and those with highly specialized conditions, who lack effective therapies to live their lives to the fullest.

With the acquisition and integration of Baxalta, Shire has solidified its leadership position in rare diseases with a robust inline portfolio, innovative pipeline and global commercial infrastructure.

Business Model

The Company strives to develop best-in-class products, many of which are available in more than 100 countries, across core therapeutic areas including Immunology, Hematology, Neuroscience, Internal Medicine, Genetic Diseases, Oncology and Ophthalmics.

Shire's business is managed through guidance from the Board of Directors (Board), the Chief Executive Officer (CEO) and the Executive Committee, with support from its Inline Committee, Pipeline Committee and Corporate Committee, which comprise senior management from across functions to support the inline products, pipeline activities and other corporate related activities, respectively.

The principal purpose of the Board is to provide leadership to the Company in a manner that promotes its long-term success, creating sustainable value for the benefit of shareholders and other stakeholders. The Board, with input from management, determines the strategy and the Board is responsible for overseeing its implementation by management. In doing so, the Board works closely with management to ensure that a culture of integrity, responsibility and patient focus exists throughout the organization. In addition, the Board has oversight of all material matters impacting the Company and its operations including key policies, significant financial matters, mergers and acquisitions, risk management and succession planning.

The Executive Committee assists the CEO in managing Shire’s business operations, ensuring that they are run within the governance framework established by the Board. In doing so, the Executive Committee supports the implementation of the Company’s strategy and deliberates matters that are material from a risk, financial, reputational and strategic perspective.

Shire's Inline Committee focuses exclusively on the commercial execution of its marketed products to ensure that the Company services the needs of its customers and patients, as efficiently as possible; while Shire’s Pipeline Committee focuses on advancing the pre-clinical and clinical development pipeline, targeting rare diseases and highly specialized conditions with high unmet need. These cross-functional committees ensure Shire explores and develops opportunities built upon its core capabilities, priority commercial franchises and also seeks to explore related and emerging areas.

Shire's Corporate Committee provides oversight, input and decision-making for corporate cross-functional matters not covered by the Inline Committee and Pipeline Committee.


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Shire drives growth by investing in internal research and development and through acquisitions, in-licensing and new product development opportunities. Shire’s global corporate development team searches for new technologies, innovative products and strategic partnerships. The team engages in conversations with scientists and entrepreneurs on a global basis, while collaborating with commercial and R&D experts throughout the Company.

In 2018, the Company announced the Board concluded that the Neuroscience franchise warrants additional focus and investment and that there is a strong rationale for creating two distinct divisions within Shire: a Rare Disease division and a Neuroscience division.  The Company will implement the new divisional structure with effect from January 1, 2018.
 
2017 and Recent Highlights

Important accomplishments include:

Product updates

the U.S. Food and Drug Administration (FDA) approval and subsequent launch of MYDAYIS (mixed salts of a single-entity amphetamine product), a once-daily treatment comprised of three different types of drug-releasing beads for patients aged 13 years and older with Attention Deficit Hyperactivity Disorder (ADHD);
the European Commission (EC) granted Marketing Authorization for ADYNOVI, an extended half-life recombinant Factor VIII treatment, for on-demand and prophylactic use in patients 12 years and older living with hemophilia A;
the approval of XIIDRA for the treatment of dry eye disease (DED) in Canada, marking the first approval for the treatment outside of the U.S. XIIDRA will be available for patients in Canada in early 2018;
the approval from the Japanese Ministry of Health, Labor and Welfare and subsequent launch of INTUNIV for ADHD in Japan by Shire’s partner, Shionogi;
the EC Conditional Marketing authorization of NATPAR (rhPTH[1-84]) as an adjunctive treatment for adult patients with chronic hypoparathyroidism who cannot be adequately controlled with standard therapy alone;
the approval in Europe for a lyophilized formulation of ONCASPAR (pegaspargase) for patients with Acute Lymphoblastic Leukemia (ALL);
the EC approval of a label extension for CINRYZE (C1 inhibitor [human]), broadening its use to children with Hereditary Angioedema (HAE);
the submission of a Japanese New Drug Application for FIRAZYR to the Pharmaceutical and Medical Devices Agency in Japan for the treatment of HAE;
the submission of a Marketing Authorization Application for lifitegrast for treatment of DED in Europe;
EU Committee for Medicinal Products for Human Use (CHMP) positive opinion received for SHP660 (ADYNOVI) for treatment and prophylaxis of bleeding in patients 12 years and above with hemophilia A (congenital Factor VIII deficiency); and
EU CHMP positive opinion received for FIRAZYR for the symptomatic treatment of acute attacks of Hereditary Angioedema (HAE) in adults, adolescents and children aged two years and older.

Pipeline updates

the announcement of positive topline Phase 3 results for the HELP Study, which evaluated the efficacy and safety of subcutaneously administered SHP643 (lanadelumab) in patients 12 years of age or older with HAE;
the FDA Fast Track Designation for:
SHP655 for the treatment of congenital thrombotic thrombocytopenic purpura (cTTP);
SHP607 for the prevention of chronic lung disease in extremely premature infants;
the Orphan Drug Designations for:
SHP654 for the treatment of hemophilia A;
SHP647 for treatment of pediatric patients with moderately to severely active ulcerative colitis;
the breakthrough designation for SHP620 being studied for the treatment of Cytomegalovirus (CMV) infection and disease in transplant patients resistant or refractory to prior therapy;
the announcement of positive topline results for INTUNIV, evaluated in Phase 3 clinical trial in adults with ADHD, in partnership with Shionogi;
the initiation of Phase 3 trials for SHP640 and SHP620 in patients with bacterial and adenoviral conjunctivitis and cytomegalovirus infection, respectively; and
the submission of Investigational New Drug (IND) applications for:

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the initiation of first in human clinical studies of SHP639 for the reduction of elevated intraocular pressure in patients with primary open-angle glaucoma or ocular hypertension;
SHP654, an investigational Factor VIII (FVIII) gene therapy, for the treatment of hemophilia A; and
SHP615 (Midazolam Hydrochloride Oromucosal Solution) for status epilepticus.

Business development

entered into a licensing agreement with AB Biosciences. The license grants Shire exclusive worldwide rights to develop and commercialize a recombinant immunoglobulin product candidate;
announced the results of the first stage of the strategic review of its Neuroscience business. The Board has concluded that the Neuroscience business warrants additional focus and investment and there is a strong business rationale for creating two distinct business divisions within Shire: a Rare Disease business and a Neuroscience business;
established collaborative license agreement with Parion Sciences to advance SHP659 for ophthalmic indications;
established licensing agreement with Novimmune S.A., granting Shire exclusive worldwide rights to develop and commercialize an innovative, bi-specific antibody in pre-clinical development for the treatment of hemophilia A and hemophilia A patients with inhibitors; and
established collaboration with MicroHealth to address unique needs of hemophilia A and B patients with inhibitors.

Facilities

opened new Group Headquarters in Ireland at the Miesian Plaza on Dublin’s Baggot Street;
on January 24, 2018, Shire announced that the FDA has granted approval for the technology transfer of CINRYZE drug product manufacturing process to its Vienna, Austria manufacturing site. Shire will begin commercial manufacturing of CINRYZE drug product in Vienna in the first quarter of 2018; and
on December 27, 2017, Shire announced that it had filed its first submission to the FDA for Shire’s new plasma manufacturing facility near Covington, Georgia. The facility is expected to add approximately 30% capacity to Shire's internal network once fully operational. Commercial production is expected to begin in 2018.

Board and Senior Management Changes

on November 20, 2017, Shire announced that Thomas Dittrich will join Shire as Chief Financial Officer, and will become a member of the Executive Committee and an Executive member of the Board of Directors. Mr. Dittrich is expected to assume his roles at Shire on March 19, 2018;
effective December 31, 2017, Jeff Poulton stepped down from the Board of Directors and resigned as Shire’s Chief Financial Officer;
on January 1, 2018, John Miller, Shire’s Senior Vice President of Finance, was appointed Interim Chief Financial Officer. Mr. Miller will hold this position until Mr. Dittrich commences his employment with Shire;
on January 1, 2018, Andreas Busch, PhD, joined Shire as Head of Research and Development and Chief Scientific Officer, and became a member of Shire’s Executive Committee; and
on August 3, 2017, Shire announced that David Ginsburg, Chairman of the Science & Technology Committee, would retire following the 2018 Annual General Meeting (AGM). Subsequently, the Board resolved that David would continue for the near term as a Non-Executive Director and Chairman of the Science & Technology Committee. On February 14, 2018, the Board announced that Dominic Blakemore, having been appointed Group Chief Executive Officer of Compass Group PLC on January 1, 2018, decided to step down as a Non-Executive Director of Shire immediately following the 2018 AGM. The Board has begun a search for two new Non-Executive Director appointees who can provide the knowledge, insight and experience that both David and Dominic brought to Shire. The Board also announced on February 14, 2018 that, following the departure of William Burns from the Board of Directors after the 2018 AGM, Olivier Bohuon will be appointed Senior Independent Director of the Board.

Other developments

announced the appointment of Al Stroucken as Chair of the Remuneration Committee and
the appointment of Sara Mathew as Chair of the Audit Compliance & Risk Committee.


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Financial Information about Operating Segments
 
In 2017, the Company operated as a single operating and reportable segment. This segment is engaged in the research, development, manufacturing, marketing, distribution and sale of innovative medicines to meet significant unmet patient needs with rare diseases and other highly specialized conditions. Additional segment and geographic area disclosures are presented in Note 27, Segment Reporting, to the Consolidated Financial Statements set forth in this Annual Report on Form 10-K.

On January 8, 2018, Shire announced that the first stage of its strategic review of its Neuroscience business was completed. The Board concluded that the Neuroscience business warrants additional focus and investment and that there is a strong business rationale for creating two distinct business segments within Shire: a Rare Disease division and a Neuroscience division. The Company expects to report the operational performance metrics of each division separately beginning with the first quarter of 2018. 

Sales and Marketing

As of December 31, 2017, the Company employed 3,497 (2016: 3,325) sales and marketing staff to service its operations throughout the world, including its major markets in North America, Europe, Latin America and Asia Pacific.

Currently marketed products
 
The table below lists the Company’s main marketed products as of December 31, 2017, indicating the owner/licensor, disease area and the key territories in which Shire markets the product.
Products
 
Disease area
 
Key territories
Hematology
 
 
 
 
ADVATE [Antihemophilic Factor (Recombinant)]
 
Hemophilia A
 
Global
ADYNOVATE/ADYNOVI [Antihemophilic Factor (Recombinant), PEGylated]
 
Hemophilia A
 
U.S., EU, Japan and Switzerland
RIXUBIS [Coagulation Factor IX (Recombinant)]
 
Hemophilia B
 
U.S., Japan and Europe
VONVENDI [von Willebrand Factor (Recombinant)]
 
Von Willebrand Disease
 
U.S.
FEIBA [Anti-Inhibitor Coagulant Complex]
 
Hemophilia A and B patients with inhibitors
 
Global
OBIZUR [Factor VIII]
 
Hemophilia A
 
Global
Genetic Diseases
 
 
 
 
ELAPRASE (idursulfase)
 
Hunter Syndrome (Mucopolysaccharidosis Type II, MPS II)
 
Global1
REPLAGAL (agalsidase alfa)
 
Fabry Disease
 
Europe, Latin America and Asia Pacific2
VPRIV (velaglucerase alfa)
 
Gaucher disease, Type 1
 
Global
Neuroscience
 
 
 
 
VYVANSE/VENVANSE/ELVANSE/TYVENSE/VUXEN/ ADUVANZ (lisdexamfetamine dimesylate)
 
ADHD and BED
ADHD only
 
U.S., Canada
Europe, Brazil
3
ADDERALL XR (mixed salts of a single-entity amphetamine)
 
ADHD
 
U.S. and Canada
MYDAYIS (mixed salts of a single-entity amphetamine)
 
ADHD
 
U.S.
Immunology
 
 
 
 
GAMMAGARD LIQUID/KIOVIG [Immune globulin intravenous (Human)]
 
Primary immunodeficiency
 
U.S. and Europe4
GAMMAGARD S/D [Immune globulin intravenous (Human)]
 
Primary immunodeficiency
 
U.S. and Europe
HYQVIA [Immune Globulin Infusion 10% (Human) with Recombinant Human Hyaluronidase]
 
Primary immunodeficiency
 
U.S. and Europe

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CUVITRU [Immune Globulin Subcutaneous (Human)]
 
Primary immunodeficiency
 
U.S. and Europe
FLEXBUMIN (Human Albumin)
 
Hypovolemia, hypoalbuminemia
 
Global
CINRYZE (C1 esterase inhibitor [human])
 
HAE
 
U.S., Canada, Europe and Latin America5
FIRAZYR (icatibant)
 
HAE
 
Global
Internal Medicine
 
 
 
 
FOSRENOL (lanthanum carbonate)
 
Hyperphosphatemia in CKD-5D
 
Global6,7,8
LIALDA (mesalamine)/MEZAVANT (mesalamine)
 
Ulcerative Colitis
 
U.S., Canada, Europe and Japan8,9,10
PENTASA (mesalamine)
 
Ulcerative Colitis
 
U.S.
GATTEX/REVESTIVE [teduglutide (rDNA origin)]
 
Short Bowel Syndrome (SBS)
 
U.S., Europe and Canada11
NATPAR/A (parathyroid hormone)
 
Control of hypocalcemia in patients with hypoparathyroidism
 
Global12
Oncology
 
 
 
 
ONCASPAR  (pegaspargase)
 
ALL
 
U.S., Europe and Canada
ONIVYDE (pegylated liposomal formulation of irinotecan)
 
Metastatic adenocarcinoma of the pancreas.
 
Europe13
Ophthalmic
 
 
 
 
XIIDRA (lifitegrast ophthalmic solution) 5%
 
DED
 
Global

1 Marketed by Genzyme in Asia Pacific, Japan and South Africa under license.
2 Marketed in Japan under license by Sumitomo Dainippon Pharma Co., Ltd., and distributed in Taiwan by Excelsior Company Ltd.
3 Marketed in Brazil as VENVANSE and in the EU as ELVANSE or TYVANSE.
4 Marketed in the U.S. as GAMMAGARD LIQUID and in the EU as KIOVIG.
5 Shire owns European rights, except in Turkey, Belgium, Finland and the Netherlands, which are owned by Sanquin.
6 Marketed in Japan by Bayer under license.
7 Depending on the market, available as chewable tablet and/or oral powder.
8 Marketed by distributors in certain other markets.
9 Marketed in Japan by Mochida under license.
10 Marketed in the U.S. as LIALDA and in Europe as MEZAVANT XL or MEZAVANT.
11 Marketed in the U.S. as GATTEX and in Europe and Canada as REVESTIVE.
12 Global rights, with the exception of Israel.
13 Shire licensed rights ex-USA (except Taiwan) from Ipsen Pharmaceuticals, Inc. (Ipsen).

HEMATOLOGY PRODUCTS

Treatments for Bleeding Disorders

Bleeding disorders affect the blood clotting (coagulation) process so that it does not work properly. As a result, people with bleeding disorders can bleed for longer than normal, and some may experience spontaneous bleeding into joints, muscles, or other parts of their bodies. Bleeding disorders range in severity from mild to severe and are usually inherited, though some can be acquired. The coagulation process involves blood platelets and a variety of proteins known as clotting factors. For individuals with bleeding disorders, these factors are produced at a lower level or can even be missing.

There are two forms of hemophilia, the most common type being hemophilia A. This occurs when a person does not have enough clotting Factor VIII (factor eight). Hemophilia B is less common. A person with hemophilia B does not have enough Factor IX (factor nine). The result is the same for people with hemophilia A and B; that is, they bleed for a longer time than normal. Hemophilia is usually congenital but can be acquired. Acquired hemophilia is an autoimmune disorder. It occurs when the immune system produces antibodies that mistakenly attack clotting factors.


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ADVATE

ADVATE [Antihemophilic Factor (Recombinant)] is a recombinant Factor VIII (rFVIII) therapy. ADVATE is a recombinant antihemophilic factor indicated for use in adults and children with hemophilia A (congenital Factor VIII deficiency) for control and prevention of bleeding episodes, perioperative management and routine prophylaxis to prevent or reduce the frequency of bleeding episodes. It was approved in the U.S. in 2003 and the EU in 2004. As of December 31, 2017, it was approved in 69 countries worldwide.

ADYNOVATE/ADYNOVI

ADYNOVATE/ADYNOVI is an extended half­life rFVIII treatment for hemophilia A based on ADVATE. ADYNOVATE/ADYNOVI uses the same manufacturing process as ADVATE and adds a proven technology, PEGylation (a chemical process that prolongs the amount of time a compound remains in circulation, potentially allowing for fewer injections), which Shire has exclusively licensed from Nektar Therapeutics. ADYNOVATE was approved in the U.S. in November 2015 and in Japan in April 2016. It was approved under the name ADYNOVI in the EU in January 2018 and in Switzerland in September 2016.

RIXUBIS

RIXUBIS [Coagulation Factor IX (Recombinant)] was launched in the U.S. in 2013 for the treatment of hemophilia B. RIXUBIS is an injectable medicine used to replace clotting Factor IX that is missing in people with hemophilia B. RIXUBIS was approved in the EU in December 2014 and Japan in February 2016. As of December 31, 2017, RIXUBIS was approved in 46 countries.

Inhibitor Therapies

Inhibitors cause serious medical problems that can occur when a person with hemophilia has an immune response to treatment with clotting factor concentrates. The immune system defends the body from harmful germs and viruses. Sometimes in the case of an inhibitor, a person's immune system reacts to proteins in factor concentrates as if they were harmful foreign substances because the body has never seen them before. When this happens, inhibitors (also called antibodies) form in the blood to fight against the foreign factor proteins. This stops the factor concentrates from being able to fix the bleeding problem.

Bleeding is very hard to control in someone with hemophilia who develops inhibitors. A person with inhibitors faces more bleeding and pain because treatment with factor concentrates is ineffective. In patients with persistent inhibitors, if bleeding into the muscles and joints is not controlled, permanent joint damage is likely.

Treatment of inhibitors is one of the biggest challenges in hemophilia today. It is possible to get rid of inhibitors using a technique called immune tolerance induction, which has become the standard of care in medically advanced countries. However, this type of treatment requires specialized medical expertise, is expensive and can take a long time. Drugs called bypassing agents can be used to work around inhibitors and help blood clot.

FEIBA

FEIBA (Activated Prothrombin Complex Concentrate - aPCC) is a plasma­ based inhibitor bypass therapy, currently FEIBA is the only agent indicated for use in all three settings; on demand, prophylaxis and surgery. FEIBA can be used in both hemophilia A and hemophilia B patients with inhibitors for control of spontaneous bleeding episodes, to cover surgical interventions and routine prophylaxis to prevent or reduce the frequency of bleeding episodes. FEIBA was first approved in the U.S. in 1986, and as of December 31, 2017 was approved in 73 countries. In a number of markets (not the U.S.), FEIBA is also approved for acquired hemophilia.

Treatments for von Willebrand Disease

Von Willebrand disease (VWD) is a hereditary bleeding disorder that is caused by deficiency or dysfunction of von Willebrand factor (VWF), a plasma protein that mediates the initial adhesion of platelets at sites of vascular injury and also carries and protects Factor VIII from premature proteolysis. Because of this, the blood does not clot properly, resulting in heavy menstrual periods, easy bruising, or frequent nose bleeds.


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VONVENDI

VONVENDI/VEYVONDI is a recombinant von Willebrand factor (VWF) and is used to replace the VWF the body is missing in von Willebrand disease. VONVENDI is a first in class recombinant factor and was approved by the FDA in December 2015, for on-demand treatment and control of bleeding episodes in adults 18 years and above with VWD. VONVENDI/VEYVONDI can also be given independent of recombinant Factor VIII (rFVIII), based on patient need. This attribute allows for tailored treatment for patients who may not require additional FVIII. Veyvondi is under regulatory review in EU.

Other Hematology Products

The Company has a number of other marketed products in its Hematology portfolio (e.g., HEMOFIL M, RECOMBINATE and IMMUNATE for hemophilia A, OBIZUR for acquired hemophilia A, PROTHROMPLEX TOTAL for acquired deficiency and congenital deficiency of coagulation factors, IMMUNINE for hemophilia B).

GENETIC DISEASES PRODUCTS

Treatments for Lysosomal Storage Diseases

Lysosomal storage diseases (LSD) are a group of approximately 50 inherited metabolic diseases that are characterized by an abnormal build-up of various toxic materials in the body's cells.

A lysosome is a subcellular organelle found in nearly all types of cells that is responsible for the enzymatic digestion of macromolecules (e.g. lipids, glycoproteins and mucopolysaccharides). Lysosomal disorders are usually triggered when a particular enzyme is missing or exists in too small an amount to enable the complete breakdown of the macromolecules. When this happens, waste substances accumulate in the cell. Each LSD is characterized by the nature of the substances that accumulate and their effects on the body.

Enzyme replacement therapy (ERT) is an approach to treating LSDs whereby patients are given the particular enzyme that is deficient or absent.

REPLAGAL

REPLAGAL is an enzyme replacement marketed for the treatment of Fabry disease outside of the U.S. Fabry disease is a rare, inherited genetic disorder resulting from a deficiency in the activity of the lysosomal enzyme alpha-galactosidase A, which is involved in the breakdown of fats. Although the signs and symptoms of Fabry disease vary widely from patient to patient, the most common include severe pain of the extremities, impaired kidney function which often progresses to kidney failure, early heart disease, stroke and disabling gastrointestinal symptoms.

REPLAGAL is a fully human alpha-galactosidase A protein made in a human cell line which is designed to replace the deficient alpha-galactosidase A with an active enzyme to ameliorate certain clinical manifestations of Fabry disease.

In August 2001, REPLAGAL was granted marketing authorization in the EU. As of December 31, 2017, REPLAGAL was approved in 58 countries, excluding the U.S.

VPRIV

VPRIV is an enzyme replacement treatment for Type 1 Gaucher disease. Gaucher disease is a rare, inherited genetic disorder which results in a deficiency of the lysosomal enzyme beta-glucocerebrosidase. This enzymatic deficiency causes an accumulation of glucocerebroside, primarily in macrophages called Gaucher cells in the liver, spleen, bone marrow and other organs. The accumulation of glucocerebrosidase in Gaucher cells in the liver and spleen leads to organomegaly. Presence of Gaucher cells in the bone marrow and spleen leads to clinically significant anemia and thrombocytopenia.

VPRIV was approved by the FDA in February 2010, for long term enzyme replacement therapy for patients with Type 1 Gaucher disease. The European Medicines Agency (EMA) approved the marketing authorization for the use of VPRIV in August 2010. VPRIV has been granted orphan drug status in the EU with up to 12 years of market exclusivity from August 2010. As of December 31, 2017, VPRIV was approved in 54 countries.


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ELAPRASE

ELAPRASE is an enzyme replacement treatment for Hunter syndrome (also known as Mucopolysaccharidosis Type II or MPS II). Hunter syndrome is a rare, inherited genetic disorder mainly affecting males that interferes with the body's ability to break down and recycle waste substances. In patients with Hunter syndrome, cumulative build-up of GAGs in cells throughout the body interferes with the way certain tissues and organs function, leading to severe clinical complications and early mortality.

ELAPRASE was approved by the FDA in July 2006 and granted marketing authorization by the EMA in January 2007 for the long term treatment of patients with Hunter syndrome. ELAPRASE benefits from the 12 years of data exclusivity from the date of grant of registration given to innovator biologics in the U.S. under the Affordable Care Act (ACA).

ELAPRASE received approval from the Ministry of Health Labour and Welfare (MHLW) in Japan in October 2007. As part of an agreement with Genzyme, Genzyme manages the sales and distribution of ELAPRASE in Japan as well as certain other countries in the Asia Pacific region. As of December 31, 2017, ELAPRASE was approved in 71 countries.

Information about litigation related to ELAPRASE can be found in ITEM 3: Legal Proceedings and Note 25, Legal and Other Proceedings, to the Consolidated Financial Statements set forth in this Annual Report on Form 10-K.

NEUROSCIENCE PRODUCTS

Treatments for ADHD

ADHD is a chronic neurobehavioral disorder that manifests as a persistent pattern of inattention and/or hyperactivity-impulsivity that is more frequent and severe than is typically observed in individuals at a comparable level of development. Although there is no cure for ADHD, there are accepted treatments that have been demonstrated to improve symptoms. Standard treatments include educational approaches, psychological therapies that may include behavior modification, and/or medication.

VYVANSE

VYVANSE is a stimulant for the treatment of ADHD, where the amino acid l-lysine is linked to d-amphetamine. VYVANSE is therapeutically inactive until metabolized in the body.

The FDA approved VYVANSE as a once-daily treatment for children aged 6 to 12 with ADHD in February 2007, for adults in April 2008 and for adolescents aged 13 to 17 in November 2010. In addition, VYVANSE became the first drug in its class to be approved by the FDA for maintenance treatment, having been approved both as a maintenance treatment in adults with ADHD in January 2012, and for maintenance treatment in pediatrics and adolescents aged 6 to 17 in April 2013. VYVANSE is available in the U.S. in seven dosage strengths and in two different formulations capsules and chewable.

The product is approved and marketed in selected European countries, Australia, Canada and Latin America under a variety of trade names VYVANSE/VENVANSE/ELVANSE/TYVENSE/VUXEN/ADUVANZ.

VYVANSE was also approved in the U.S. in January 2015 as the first and only treatment of moderate to severe binge eating disorder (BED) in adults. BED is defined as recurring episodes (more than once weekly), for at least three months, of consuming a large amount of food in a short time, compared with others. VYVANSE was approved for the treatment of BED in Canada in October 2016.

ADDERALL XR

ADDERALL XR is an extended release treatment for ADHD and is designed to provide once-daily dosing. The FDA approved ADDERALL XR as a once-daily treatment for children aged 6 to 12 with ADHD in October 2001, for adults in August 2004 and for adolescents aged 13 to 17 in July 2005.


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MYDAYIS

MYDAYIS (mixed salts of a single-entity amphetamine product), a once-daily, extended-release treatment comprised of three types of drug-releasing beads, is now available for prescription in the United States. The FDA approved MYDAYIS on June 20, 2017 for patients 13 years and older with ADHD. MYDAYIS is not for use in children 12 years and younger.

Information about litigation related to MYDAYIS can be found in ITEM 3: Legal Proceedings and Note 25, Legal and Other Proceedings, to the Consolidated Financial Statements set forth in this Annual Report on Form 10-K.

Other Neuroscience Products

The Company has a number of other products for the treatment of Neuroscience conditions (e.g., INTUNIV and EQUASYM for ADHD and BUCCOLAM for convulsive seizures).

IMMUNOLOGY PRODUCTS

Treatments for Primary Immunodeficiency

Primary immunodeficiencies (PID) are a group of more than 300 disorders in which part of the body's immune system is missing or does not function properly. Normally, the immune system protects the body from pathogenic microorganisms like bacteria, viruses, and fungi, which can cause infectious diseases. When any part of a person's immune system is absent or dysfunctional, the individuals are susceptible to infections, and it may take longer to recover from infections. When a defect in the immune system is inherited and genetically determined, it is called primary immunodeficiency.

GAMMAGARD LIQUID/KIOVIG

GAMMAGARD LIQUID [Immune Globulin Intravenous (Human) 10%] is a liquid formulation of the antibody­replacement therapy immunoglobulin product. It was originally approved by the FDA in September 2005. GAMMAGARD LIQUID is used to treat adult and pediatric patients two years of age or older with PID and can be administered either intravenously or subcutaneously. GAMMAGARD LIQUID is also used to treat adult patients with multifocal motor neuropathy (MMN) administered intravenously. It can be administered either intravenously or subcutaneously. KIOVIG is the brand name used for GAMMAGARD LIQUID outside of the U.S. KIOVIG is approved in Europe for use by patients with PID and certain secondary immunodeficiencies, and for adults with MMN. As of December 31, 2017, GAMMAGARD LIQUID/KIOVIG was approved in 72 countries.

GAMMAGARD S/D

GAMMAGARD S/D [Immune Globulin Intravenous (Human)] IgA less than 1 µg/mL in a 5% solution is indicated for the treatment of PID in patients two years old and older. GAMMAGARD S/D is also indicated for prevention of bacterial infections in hypogammaglobulinemia and/or recurrent bacterial infections associated with B­cell chronic lymphocytic leukemia (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. GAMMAGARD S/D is provided for patients who require a low IgA content in their IV treatment (IgA less than 1 µg/mL in a 5% solution). GAMMAGARD S/D was initially approved in the U.S. in 1994. As of December 31, 2017, GAMMAGARD S/D was approved in 22 countries.


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HYQVIA

HYQVIA [Immune Globulin Infusion 10% (Human) with Recombinant Human Hyaluronidase] is a product consisting of human normal immunoglobulin (IG) and recombinant human hyaluronidase (licensed from Halozyme). The IG provides the therapeutic effect and the recombinant human hyaluronidase facilitates the dispersion and absorption of the IG administered subcutaneously, increasing its bioavailability. The IG is a 10% solution that is prepared from human plasma consisting of at least 98% immunoglobulin G, which contains a broad spectrum of antibodies. HYQVIA is the only subcutaneous IG treatment for PID patients with a dosing regimen requiring only one infusion up to once per month and one injection site per infusion to deliver a full therapeutic dose of IG. HYQVIA is approved in Europe for use by patients with PID syndromes and myeloma or CLL with severe secondary hypogammaglobulinemia and recurrent infections, and in the United States for adults with PID. HYQVIA was approved in Europe in May 2013 and the U.S. in September 2014. As of December 31, 2017, HYQVIA was approved in 26 countries.

CUVITRU

CUVITRU is an Immune Globulin Subcutaneous (Human) (IGSC), 20% Solution indicated as replacement therapy for primary humoral immunodeficiency in adult and pediatric patients two years of age and older. CUVITRU is also indicated in the EU for the treatment of certain secondary immunodeficiencies. CUVITRU is the only 20% subcutaneous IG treatment option without proline and with the ability to infuse up to 60 mL (12 grams) per site and 60 mL per hour, per site as tolerated, resulting in fewer infusion sites and shorter infusion durations compared to other conventional subcutaneous IG treatments. CUVITRU was approved in the U.S. in September 2016. A decentralized procedure (DCP) to support approval by 17 authorities in Europe was successfully completed in June 2016. As of December 31, 2017, CUVITRU was approved in 21 countries.

Biotherapeutic Products

Albumin Products

Human albumin, produced in the liver, is an essential protein found in human plasma and accounts for about 50% to 60% of plasma proteins. The primary functions of albumin are to maintain intravascular oncotic pressure, serve as a free radical scavenger and to facilitate transportation of substances such as fatty acids, hormones, bile salt, bilirubin, metals and therapeutic drugs. When plasma volume is drastically reduced, serum albumin supplementation can help restore the losses. The key indication of albumin is the restoration and maintenance of circulating blood volume in situations such as trauma, surgery, blood loss, hypoalbuminemia and burn management.

FLEXBUMIN/Human Albumin

FLEXBUMIN (Human Albumin in a bag) and Human Albumin (glass) are available as 5% and 25% solutions. Both products are indicated for hypovolemia, hypoalbuminemia due to general causes and burns, and for use during cardiopulmonary bypass surgery as a component of the pump prime. FLEXBUMIN 25% is also indicated for hypoalbuminemia associated with adult respiratory distress syndrome (ARDS) and nephrosis, and hemolytic disease of the newborn (HDN). FLEXBUMIN was first approved in the U.S. in 2005. As of December 31, 2017, FLEXBUMIN was approved in 51 countries.

Treatments for Hereditary Angioedema (HAE)

Hereditary Angioedema is a rare, debilitating genetic inflammatory condition, which causes episodes of swelling in the face, extremities, and gastrointestinal (GI) tract and can be life threatening.


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CINRYZE

CINRYZE (C1 esterase inhibitor (human)) is a C1 esterase inhibitor therapy for routine prophylaxis against HAE attacks. CINRYZE is marketed and sold in the U.S. for routine prophylaxis against HAE attacks in adolescent and adult patients with HAE. CINRYZE enjoys U.S. biological data exclusivity until October 2020. CINRYZE includes a self-administration option for appropriately trained patients. In June 2011, marketing authorization in the EU was granted for CINRYZE in adults and adolescents with HAE for routine prevention, pre-procedure prevention and acute treatment of angioedema attacks. In March 2017, the European Commission approved a label extension for routine prevention of angioedema attacks in children (ages six years and above) with severe and recurrent attacks of HAE who are intolerant to or insufficiently protected by oral preventions treatments, or patients who are inadequately managed with repeated acute treatment. The EC also approved CINRYZE for the treatment and pre-procedure prevention of angioedema attacks in children (ages two years and above) with HAE. As of December 31, 2017, CINRYZE was approved in 36 countries.

FIRAZYR

FIRAZYR (icatibant injection) is a bradykinin B2 receptor antagonist developed for the treatment of acute attacks of HAE. In July 2008, the EC granted marketing authorization throughout the EU for the use of FIRAZYR for the symptomatic treatment of acute attacks of HAE in adults, and in March 2011 approved FIRAZYR for self-administration after training in subcutaneous injection technique by a healthcare professional. In August 2011, the FDA granted marketing approval for FIRAZYR in the U.S. for treatment of acute attacks of HAE in adults aged 18 and older and, after injection training, patients may self-administer FIRAZYR. FIRAZYR has been granted orphan drug exclusivity by both the FDA and the EMA, providing it with up to seven and ten years market exclusivity in the U.S. and EU, respectively, from the date of the grant of the relevant marketing authorization. On October 26, 2017, Shire announced that the EC approved a label extension for FIRAZYR (icatibant injection), broadening its use to adolescents and children aged 2 years and older, with HAE caused by C1-esterase-inhibitor (C1-INH) deficiency. As of December 31, 2017, FIRAZYR was approved in 45 countries.

Other Immunology Products

Shire has a number of other marketed products in the Immunology portfolio including SUBCUVIA for primary immunodeficiency, ARALAST NP and GLASSIA NP for emphysema due to severe hereditary deficiency of alpha1- antitrypsin, CEPROTIN for congenital protein C deficiency and BUMINATE for hypovolemia and hypoalbuminemia.

INTERNAL MEDICINE PRODUCTS

GATTEX/REVESTIVE

SBS results from a significant resection of the intestine that may have been caused by Crohn’s Disease, vascular thrombosis, cancer and/or other conditions. Most SBS patients have to rely on parenteral support to survive (up to six days per week and 8 to 12 hours per day). Parenteral support does not address the issue of malabsorption and is associated with serious life-threatening complications including infections, blood clots, and liver damage. Gattex/Revestive enables patients with SBS to increase absorption and thereby reduce their need for parenteral nutrition with the opportunity to wean off it.

GATTEX/REVESTIVE (teduglutide [rDNA origin]) for injection is the first prescription medicine for the long-term treatment of adults with SBS who are dependent on parenteral support. SBS is an ultra rare condition in which a large portion of the intestine has been removed by surgery. As a result, people cannot absorb enough nutrients or fluids from food and liquids to maintain good health. SBS can also be caused by disease or injury that prevents the small intestine from functioning properly despite normal length. To make up for the inadequate absorption, intravenous (IV) feeding (parenteral support) may be prescribed to help the patient stay healthy. GATTEX/REVESTIVE may help the remaining intestine absorb more fluids and reduce the need for parenteral support. GATTEX was approved by the FDA in December 2012. REVESTIVE was approved in the EU in August 2012. As of December 31, 2017, GATTEX/REVESTIVE was launched in the U.S., Canada, Sweden, Germany, Norway, France, Austria, Finland, Spain and Switzerland.


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NATPARA/NATPAR

NATPARA (parathyroid hormone) for injection is indicated as an adjunct to calcium and vitamin D to control hypocalcemia in patients with hypoparathyroidism (HPT). HPT is a rare condition in which the parathyroid glands fail to produce sufficient amounts of parathyroid hormone (PTH) or where the PTH lacks biologic activity. In patients with HPT, insufficient levels of PTH lead to many physiological abnormalities, including low serum calcium and an inability to convert native vitamin D into its active state to properly absorb dietary calcium. Acute symptoms of HPT are largely due to low serum calcium and range from muscle pain and tingling, to lack of focus or ability to concentrate, and anxiety and depression. In extreme cases, life-threatening events, such as arrhythmias and seizures, may occur.

NATPARA was approved by the FDA in January 2015. NATPARA has been granted orphan drug exclusivity by the FDA. NATPARA also benefits from the 12 years of data exclusivity from the date of registration given to innovator biologics in the U.S. under the ACA. NATPAR was granted conditional marketing authorization in Europe by CHMP in April 2017. As of December 31, 2017, NATPAR/A was launched in the U.S., Germany, Norway, Denmark, Austria and Sweden.

LIALDA/MEZAVANT

Ulcerative Colitis (UC) is a serious chronic inflammatory disease of the colon in which part or all of the large intestine becomes inflamed and often ulcerated.

LIALDA is approved for the induction of remission in patients with active mild to moderate UC and for the maintenance of remission of UC. LIALDA is marketed in certain territories outside the U.S. by Shire under the trade name MEZAVANT and MEZAVANT XL. As of December 31, 2017, LIALDA/MEZAVANT was commercially available in 31 countries either directly or through distributor arrangements. A generic version of LIALDA is now available in the U.S.

Information about litigation related to LIALDA can be found in ITEM 3: Legal Proceedings and Note 25, Legal and Other Proceedings, to the Consolidated Financial Statements set forth in this Annual Report on Form 10-K.

Other Internal Medicine Products

The Company has a number of other marketed products in the Internal Medicine portfolio (e.g., XAGRID/AGRYLIN for essential thrombocythemia, RESOLOR for chronic constipation, REMINYL for dementia, PLENADREN for adrenal insufficiency, FOSRENOL for hyperphosphatemia in end stage renal disease, PENTASA for ulcerative colitis, and CARBATROL for epilepsy).

ONCOLOGY PRODUCTS

Acute Lymphoblastic Leukemia (ALL)

Acute lymphoblastic leukemia is a rare, fast-growing cancer of the white blood cells. The disease is the most common childhood cancer and is responsible for more than 80% of childhood leukemia cases. The five-year pediatric survival rate has climbed to 80% with modern therapies.

ONCASPAR

ONCASPAR (pegaspargase) is approved in the U.S., Canada and EU as a component of a multi-agent chemotherapeutic regimen for the first-line treatment of patients with ALL. As of December 31, 2017, ONCASPAR was approved in 46 countries.

Pancreatic Cancer

Pancreatic cancer begins in the tissues of the pancreas when abnormal cells within the pancreas grow out of control and form a tumor. It spreads rapidly and is seldom detected in its early stages, making it a leading cause of cancer death.


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ONIVYDE

ONIVYDE (pegylated liposomal formulation of irinotecan) is approved in the U.S. and EU in combination with fluorouracil (5-FU) and leucovorin (LV), for the treatment of patients with metastatic adenocarcinoma of the pancreas after disease progression following gemcitabine based therapy. As of December 31, 2017, ONIVYDE was approved in 38 countries.

Shire is responsible for the development and commercialization of ONIVYDE outside of the U.S. and Taiwan under an exclusive licensing agreement with Ipsen. Shire pays Ipsen regulatory and development milestones and tiered royalties on ONIVYDE net sales. Ipsen markets ONIVYDE in the United States. PharmaEngine holds the commercialization rights in Taiwan.

OPHTHALMIC PRODUCTS

XIIDRA

XIIDRA (Lifitegrast ophthalmic solution 5%) is an integrin antagonist that reduces chronic inflammation associated with dry eye disease. It was approved by the FDA in July 2016 as the first and only prescription eye drop indicated for the treatment of the signs and symptoms of dry eye disease.

XIIDRA is currently approved and marketed in the U.S. XIIDRA was approved in Canada in January 2018 and further expansion plans are underway, with filings submitted in Israel, Europe and other International markets.

ROYALTIES RECEIVED FROM OTHER PRODUCTS

SENSIPAR

Shire receives royalties arising from collaborations with Amgen and Kyowa Hakko Kirin. Amgen markets Cinacalcet HCI, a treatment for secondary hyperparathyroidismas, as Sensipar in the U.S. and as Mimpara in the EU; Kyowa Hakko Kirin markets Cinacalcet HCI as Regpara in Japan, Hong Kong, Malaysia, Macau, Singapore and Taiwan. Shire is entitled to royalties from the relevant net sales of these products through 2019 in Asia-Pacific sales territories and in or through 2018 for all other territories.

Antiviral products (3TC/Zeffix)

Shire receives royalties on antiviral products licensed to GlaxoSmithKline; 3TC for HIV and Zeffix Hepatitis B virus. Royalty terms expired in most territories outside of the U.S. during 2012. In the U.S., remaining royalty terms expire in 2018.

FOSRENOL

Shire licensed the rights to FOSRENOL in Japan to Bayer in December 2003. Bayer launched FOSRENOL in Japan in March 2009. Shire receives royalties from Bayer's sales of FOSRENOL in Japan. Shire has also received milestone payments from Bayer based on the achievement of certain sales thresholds and may receive further milestone payments in the future if certain sales thresholds are achieved.

ADDERALL XR

Shire currently receives royalties from the sales of the generic version of ADDERALL XR from Impax Laboratories, Inc., Teva Pharmaceuticals Industries, Ltd. and Allergan plc. Shire also receives royalties from Prasco, LLC (Prasco) and Sandoz Inc. from sales of the authorized generic version of ADDERALL XR supplied by Shire.

Licensing funded research portfolio

Shire has licensed the rights to certain other products to third parties and receives royalties on third party sales. Shire also has rights to future milestones and royalties from its licensing funded research portfolio.
 

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PRODUCTS UNDER DEVELOPMENT

The Company focuses its development resources on projects in a number of therapeutic areas, including Hematology, Immunology, Neuroscience, Ophthalmics, Internal Medicine, Genetic Diseases and Oncology with its early development projects primarily centered around rare diseases with a focus on selected technology platforms, such as antibodies and gene therapy approaches. Total R&D expense (including impairment charges and depreciation) of $1,763.3 million, $1,439.8 million and $1,564.0 million were incurred in the years ended December 31, 2017, 2016 and 2015, respectively.

The table below lists the Company’s products in clinical development and registration as of December 31, 2017 by stage of development indicating the most advanced development status reached in major markets and the Company’s territorial rights in respect of each product candidate. If these product candidates are ultimately approved and marketed, they may benefit from patent and/or other forms of exclusivity, as described in more detail in the sections headed “Intellectual property” and “Government Regulation” in this ITEM 1. Some of the patents (or their analogous foreign patent applications or foreign granted patents) listed in the table on “Intellectual property” section of this ITEM 1 are potentially relevant to the corresponding development projects listed below. However, as these product candidates remain in development and are subject to change as development progresses, the patents listed may not necessarily be representative of the scope of patent protection that may ultimately be available if each product candidate is approved and marketed.
 
Product
 
Disease area
 
Development status as of December 31, 2017
 
The Company’s territorial rights
SHP489 (VYVANSE)
 
ADHD in children and adolescents
 
Registration in Japan
 
Global1
SHP660 (ADYNOVATE/ADYNOVI)
 
Hemophilia A
 
Registration in EU
 
Global
SHP677 (VONVENDI)
 
Von Willebrand Disease
 
Registration
 
Global
SHP667 (FIRAZYR)
 
HAE
 
Registration in Japan
 
Global
SHP606 (XIIDRA)
 
Dry Eye Disease
 
Registration in EU
 
Global
SHP663
 
Acute Lymphocytic Leukemia
 
Registration2
 
Global
SHP643
 
HAE prophylaxis
 
Registration2
 
Global
SHP555
 
Chronic idiopathic constipation in adults
 
Registration2
 
U.S. and EU
SHP616 (CINRYZE)
 
Prophylaxis and acute treatment of angioedema
 
Phase 3 in Japan
 
Global
SHP616 (CINRYZE)
 
Antibody Mediated Rejection
 
Phase 3
 
Global
SHP616 (CINRYZE)
 
Subcutaneous formulation for HAE prophylaxis
 
Phase 3
 
Global
SHP620
 
Treatment of cytomegalovirus infection (CMV) in transplant patients
 
Phase 3
 
Global3
SHP621
 
Treatment of adolescents and adults with Eosinophilic Esophagitis (EoE)
 
Phase 3
 
Global
SHP633 (REVESTIVE)
 
Treatment of adults with SBS
 
Phase 3 in Japan
 
Global
SHP633 (GATTEX/REVESTIVE)
 
Treatment of pediatric patients with SBS
 
Phase 3
 
Global
SHP640
 
Treatment of infectious conjunctivitis
 
Phase 3
 
Global
SHP647
 
Ulcerative Colitis
 
Phase 3
 
Global
SHP609
 
Neurocognitive Decline Associated with Hunter Syndrome
 
Phase 2/3
 
Global4
SHP647
 
Crohn’s Disease
 
Phase 2
 
Global
SHP655
 
Congenital Thrombotic Thrombocytopenic Purpura
 
Phase 3
 
Global5

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SHP671 (HYQVIA)
 
Chronic Inflammatory Deymelinating Polyradiculoneuropathy (CIDP)
 
Phase 3
 
Global
SHP671 (HYQVIA)
 
Primary Immunodeficiency in pediatric patients
 
Phase 3
 
Global
SHP672 (OBIZUR)
 
Congenital Hemophilia A with Inhibitors (CHAWI) surgery
 
Phase 3
 
Global
SHP607
 
Chronic Lung Disease
 
Phase 2
 
Global
SHP615 (BUCCOLAM)
 
Convulsive Seizures
 
Phase 3 in Japan
 
Global
SHP615 (BUCCOLAM)
 
Convulsive Seizures
 
Phase 2 in U.S.
 
Global
SHP625
 
Alagille Syndrome
 
Phase 2
 
U.S. and EU
SHP625
 
Progressive Familial Intrahepatic Cholestasis
 
Phase 2
 
U.S. and EU
SHP626
 
Treatment of nonalcoholic steatohepatitis (NASH)
 
Phase 2
 
Global
SHP652
 
Systemic Lupus Erythematosus
 
Phase 2
 
U.S., EU, JP, select APAC and LATAM countries
SHP659
 
Dry Eye Disease
 
Phase 2
 
Global
SHP673 (ONIVYDE)
 
2nd Line Pancreatic Cancer
 
Phase 2 in Japan
 
Global6
SHP673 (ONIVYDE)
 
Pancreatic Cancer, Post Gemcitabine
 
Phase 2
 
Global6
SHP611
 
Metachromatic Leukodystrophy (MLD)
 
Phase 1/2
 
Global
SHP631
 
Treatment of both the Central nervous system (CNS) and somatic manifestations in patients with MPS II
 
Phase 1
 
Global
SHP634 (NATPARA)
 
Hypoparathyroidism
 
Phase 1 in Japan
 
Global7
SHP639
 
Glaucoma
 
Phase 1
 
Global
SHP654
 
Hemophilia A
 
Phase 1
 
Global
SHP673 (ONIVYDE)
 
Small Cell Lung Cancer, 2nd Line
 
Phase 1
 
Global6
SHP680
 
Neurological Conditions
 
Phase 1
 
Global

1 Under co-development with Shionogi in Japan under a license and collaboration agreement.
2 Programs have completed Phase 3 / pivotal trials and are awaiting further regulatory action.
3 Global Rights, with the exception of Japan.
4 Under licence, Genzyme has rights to manage marketing and distribution in Asia Pacific, Japan and South Africa.
5 Global rights, with the exception of Japan (where the licensor, Kaketsuken, has retained rights).
6 Global rights, with the exception of the U.S. (Ipsen is the U.S. license owner) and Taiwan (Pharma Engine is the Taiwanese license holder).
7 Global rights, with the exception of Israel.

PIPELINE

Among the products, therapies and projects in Shire’s pipeline are the following, grouped by development status as of December 31, 2017:


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Products in Registration

Hematology

SHP660 (ADYNOVATE/ADYNOVI) for the treatment of hemophilia A

ADYNOVATE/ADYNOVI is a PEGylated rFVIII, considered as lead candidate of the rFVIII EHL (extended half-life) program. ADYNOVATE/ADYNOVI is considered a next-generation ADVATE molecule with improved pharmacokinetic properties, to provide hemophilia A patients on prophylaxis with another option built on the proven ADVATE molecule. Phase 2/3 has been completed, followed by approval and first product launch in the U.S. (fourth quarter of 2015) and then Japan (second quarter of 2016). It was approved under the name ADYNOVI in Switzerland in September 2016. The product received positive opinion for treatment and prophylaxis of bleeding in patients 12 years and above with hemophilia A (congenital Factor VIII deficiency) in November 2017 in the EU.

SHP677 (VONVENDI) for the treatment of von Willebrand disease

VONVENDI is the first recombinant therapy providing a pure von Willebrand disease factor with customized dosing. The Company received U.S. regulatory approval in December 2015 and the product was broadly available in the U.S. in late 2016. A surgery clinical study, which is required for filing in Europe, was completed in the fourth quarter of 2016. In June 2017, the European Medicines Agency (EMA) validated the Marketing Authorization Application (MAA) for VEYVONDI to prevent and treat bleeding episodes and peri-operative bleeding in adults (age 18 and older) diagnosed with von Willebrand Disease. The product is currently under regulatory review in the EU.

Immunology

SHP643 for the treatment of HAE

SHP643 is a Phase 3 novel long-acting human monoclonal antibody inhibitor of plasma kallikrein (pKal). SHP643 has received Fast Track, Breakthrough Therapy, and Orphan Drug Designations by the FDA and received Orphan Drug Designation in the EU. On May 18, 2017 Shire announced positive topline data from the Phase 3 HELP study of SHP643 in patients with HAE. The HELP study met all primary and secondary efficacy endpoints for all SHP643 treatment arms vs. placebo (on demand therapy allowed) with a favorable safety profile. The program has completed Phase 3 / pivotal trials and is awaiting further regulatory action.

SHP667 (FIRAZYR) 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 HAE attacks was similar between Japanese patients and those patients who participated in Shire’s previously conducted Phase 3 program. Shire filed a JNDA for the treatment of acute attacks of HAE in July 2017.

Internal Medicine

SHP555 prucalopride; marketed as RESOLOR in the EU for the treatment of chronic idiopathic constipation (CIC) in the U.S.

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. In June 2015, Shire announced that prucalopride has been approved by the EC for use in adults (men and women) for the symptomatic treatment of chronic constipation in whom laxatives fail to provide adequate relief. Shire has discussed with the FDA the requirements for filing an NDA for prucalopride. The program has completed Phase 3 / pivotal trials and is awaiting further regulatory action.

Neuroscience

SHP489 (VYVANSE) for the treatment of ADHD in Japan

LDX is currently marketed as VYVANSE in the U.S. and ELVANSE in certain countries in the EU for the treatment of ADHD. Shionogi and Shire are co-developing and will 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 completed. Shire filed a JNDA in Japan for LDX in April 2017.

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Oncology

SHP663 for the treatment of acute lymphocytic leukemia

ONCASPAR (pegaspargase) product portfolio contains an investigational biologic calaspargase pegol, which is Shire's next generation pegylated asparaginase, currently in Phase 3 development. Shire has worked with the FDA to identify a clear path forward for the Biologics License Application (BLA). The program has completed Phase 3 / pivotal trials and is awaiting further regulatory action.

Ophthalmics

SHP606 (XIIDRA) for the treatment of DED in EU

SHP606 (XIIDRA) was approved by the FDA in July 2016, indicated for the treatment of the signs and symptoms of DED. Shire submitted a Marketing Authorization Application in the EU in August 2017.

Phase 3

Hematology

SHP672 (OBIZUR) CHAWI SURGERY for patients with congenital hemophilia A with inhibitors undergoing surgery

OBIZUR is a recombinant porcine sequence FVIII (rpFVIII), from which major parts 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 study was initiated in July 2016 and enrollment is ongoing. This is an important trial as patients with inhibitors are at risk of perioperative bleeding complications, presenting therapeutic challenges in elective or emergency surgery. Additionally, some patients do not respond well to bypassing agents and the inability to measure FVIII levels in Acquired Hemophilia A (AHA) patients continues to be a clinical challenge in treating AHA patients. When OBIZUR is used, the clinician can measure FVIII levels.

SHP655 rADAMTS13 for the acute treatment and long-term prophylaxis of cTTP

SHP655 is a recombinant human ADAMTS13 (rADAMTS13) protein for the acute treatment and long-term prophylaxis of cTTP, a rare, ultra-orphan condition. SHP655 will be assessed as a replacement therapy for cTTP. Phase 1/2 has been completed, and Phase 3 has been initiated and the first patient enrolled in the fourth quarter of 2017.

Genetic Diseases

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 completed enrollment in September 2016. Topline data were received in December 2017 and the study did not meet its primary or key secondary endpoints. The extension study is ongoing.


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Immunology

SHP616 SC life cycle management for CINRYZE

Shire is pursuing a subcutaneous formulation of C1 esterase inhibitor for routine prophylaxis against HAE attacks in adolescent and adult patients. On September 11, 2017, Shire announced positive topline Phase 3 results for the SAHARA study, a trial that evaluated the efficacy and safety of subcutaneously administered C1 esterase inhibitor [human] Liquid for Injection in patients with HAE. The SAHARA study met its primary and all key secondary endpoints with a favorable safety profile, significantly reducing Hereditary Angioedema monthly attack rate versus placebo.

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 being completed.

SHP671 CIDP (HYQVIA) for patients with Chronic Inflammatory Demyelinating Polyradiculoneuropathy (CIDP) and PID in pediatric patients

Shire is undertaking efforts to expand indications for HYQVIA, including for the treatment of CIDP, a neurological disorder characterized by progressive weakness and impaired sensory function in the legs and arms. A Phase 3 clinical trial is currently enrolling. A Phase 3 clinical trial in pediatric patients with PID is ongoing.

SHP616 for the treatment of Antibody Mediated Rejection

A Phase 2 study for the treatment of Antibody Mediated Rejection (AMR) with SHP616 has been completed. Shire has received FDA and EMA feedback and submitted an IND in the second quarter of 2015. The FDA granted Fast Track Designation for SHP616 in October 2015, and Shire is currently enrolling a Phase 3 study for the treatment of acute AMR in kidney transplant patients.

SHP620 maribavir for the treatment of CMV infection in transplant patients

Shire has completed two Phase 2 studies of maribavir in transplant recipients with cytomegalovirus (CMV) infection. Maribavir has been granted Orphan Drug Designation in the U.S. In June 2015, Shire met with the FDA and received feedback on a proposed path forward. Shire is currently enrolling two Phase 3 studies, one for the treatment of CMV infection in bone marrow transplant recipients and a second study for the treatment of transplant recipients (bone marrow or solid organ transplant) with CMV infection refractory or resistant to currently available anti-CMV therapies.

Internal Medicine

SHP621 Budesonide Oral Suspension (BOS), for the treatment of adolescents and adults with Eosinophilic Esophagitis (EoE)

BOS 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 BOS for the treatment of patients with EoE. In addition, in May 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 and enrollment is ongoing in both induction and extension studies.

SHP633 (REVESTIVE) for the treatment of SBS

In the U.S., SHP633 is approved and marketed as GATTEX to treat adult patients with SBS who are dependent on parenteral support; Shire is also preparing for a U.S. pediatric submission in 2018. In Canada and Europe, SHP633 is approved and marketed as REVESTIVE to treat adults with SBS who depend on parenteral support; in Europe, REVESTIVE has also a pediatric indication for children aged one year and above. In Japan, SHP633 is currently being investigated in a Phase 3 bridging study in adults and in children in a pediatric study.


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SHP647 for the treatment of moderate-to-severe inflammatory bowel disease (IBD)

SHP647 is a fully human IgG2k anti-monoclonal antibody that binds to human mucosal addressing cell adhesion molecule (MAdCAM) and SHP647 is being evaluated as a once-monthly, selective inhibitor of the gut-specific leukocyte adhesion process delivered by subcutaneous injection. By targeting a unique, gut-specific endothelial adhesion molecule the asset should provide a more selective and potentially safer approach to reducing inflammation associated with IBD. Phase 2 studies in Ulcerative Colitis (UC) and Crohn’s disease (CD) were completed and showed, strong signs of efficacy in UC. Clinical development plans have been discussed with the FDA and EMA, and Shire initiated Phase 3 trials in UC in November 2017 and is working towards initiation of a global clinical Phase 3 development program for CD (expected first half of 2018).

Neuroscience

SHP615 (BUCCOLAM) Convulsive Seizures Japan

BUCCOLAM is the first and only licensed (EU) buccally administered midazolam for treatment of prolonged, acute, convulsive seizures in infants, toddlers, children and adolescents (three months to 18 years). In Japan, this product will be developed for the treatment of Status Epilepticus by caregivers or HCPs in hospital and community settings. The decision to bring Buccolam to Japan is a consequence of the “unapproved drug request” from MHLW to Shire on behalf of advocacy groups requesting for the drug to be provided in Japan. A Phase 3 study started in 2017 and is ongoing.

Ophthalmics

SHP640 for the treatment of infectious conjunctivitis

SHP640 is 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. Based on the feedback from the FDA meeting, Shire initiated the Phase 3 program in both adenoviral and bacterial conjunctivitis in the first quarter of 2017 with enrollment ongoing.

Phase 2

Immunology

SHP652 for the treatment of systemic lupus erythematosus

SHP652 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. Additional non-clinical work to address FDA’s clinical hold questions on the IND is ongoing.

Internal Medicine

SHP607 for the prevention of certain complications of prematurity

SHP607 is a 1:1 complex of two recombinant human proteins: insulin-like growth factor 1 (rhIGF-1) and IGF binding protein 3 (rhIGFBP-3). Through continuous IV infusion, SHP607 is designed to replace low endogenous levels of IGF-1 due to premature birth. The program completed a Phase 2 clinical trial in early 2016, in which it assessed the safety and efficacy of the drug product in infants born before 28 weeks. SHP607 did not meet its primary endpoint of reducing the severity of retinopathy of prematurity (ROP), a rare eye condition. The study, however, demonstrated clinically relevant effects in secondary endpoints related to the development of severe bronchopulmonary dysplasia (BPD), a chronic lung disease, and severe intraventricular hemorrhage (IVH), a type of brain injury, both of which have lifelong negative implications for normal development. Shire is working with regulatory authorities on the design of the Phase 2b program expected to be initiated in the first half of 2018.


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SHP625 for the treatment of cholestatic liver disease

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 and Breakthrough Therapy Designation in the U.S. for PFIC type 2. Following consultation with the FDA, Shire is progressing SHP625 in PFIC into a registrational Phase 3 study anticipated to start in 2018 and continuing the dialogue with the Agency to discuss options for further development of SHP625 in ALGS.

SHP626 for the treatment of Non-Alcoholic SteatoHepatitis (NASH) with liver fibrosis

SHP626 is in development for the treatment of NASH. A Phase 1b multiple-dose trial has been completed and Shire is currently enrolling subjects with NASH in a Phase 2 study.

Neuroscience

SHP615 (BUCCOLAM) for the treatment of convulsive seizures in U.S.

BUCCOLAM is the first and only licensed (EU) buccally administered midazolam for treatment of prolonged, acute, convulsive seizures in infants, toddlers, children and adolescents (three months to 18 years). Shire is working closely with the FDA on a development program to register SHP615 in the U.S.

Ophthalmics

SHP659 for the treatment of DED

SHP659 is being developed for the treatment of DED. It is a small molecule epithelial sodium channel inhibitor. Preclinical PoC and Phase 1b safety tolerability studies have been completed. The program is currently in development for planned initiation of Phase 2 studies in 2018.

Oncology

SHP673 (ONIVYDE) for the treatment of metastatic pancreatic cancer in Japan

ONIVYDE is co-developed with Ipsen Bioscience Inc. (Ipsen) and Shire is responsible for the development and commercialization of ONIVYDE outside of the U.S. and Taiwan. nal-IRI is approved in the U.S. (ONYVIDE) and in Taiwan since October 2015. A Japan support study in post-gemcitabine metastatic pancreatic cancer patients was completed.

SHP673 (ONIVYDE) for the treatment of 1st line metastatic pancreatic cancer

A pivotal trial of NAPOX regimen (Onivyde+5-FU/LV+oxaliplatin) vs. the approved SOC (gemcitabine + nab-paclitaxel) in 1L mPaCa setting is currently being conducted by Ipsen. The current phase of the study is dose exploration/dose expansion. The Phase 3 portion of the trial is anticipated to begin in 2018.

Phase 1

Hematology

SHP654 for the treatment of hemophilia A

SHP654, an investigational Factor VIII (FVIII) gene therapy for the treatment of hemophilia A, entered into a Phase 1/2 clinical trial in 2017. IND clearance by FDA for initiation of clinical development was received in early August 2017. FDA orphan drug designation for treatment of hemophilia A was received in September 2017. The Phase 1/2 study start up is currently ongoing, with the First Patient Screened planned for December 2017.


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Neuroscience

SHP680 for the treatment of Neurological Conditions

SHP680 is a prodrug comprising of d-amphetamine, which is in development for multiple neurological conditions with high unmet need.

Ophthalmics

SHP639 for the treatment of Glaucoma

SHP639 is a C-type Natriuretic Peptide (CNP) analogue and functions as a Natriuretic Peptide Receptor-B (NPR-B) agonist to treat Glaucoma via a novel mechanism of action; distinct from the mechanism of other Glaucoma drugs (i.e. Prostaglandins). The drug is currently being studied in Phase 1.

Oncology

SHP673 (ONIVYDE) for the treatment of Small Cell Lung Cancer

The marketed product, ONIVYDE, in partnership with Ipsen, is currently being investigated for the treatment of patients with Small Cell Lung Cancer (SCLC), who have progressed on or after prior platin based therapy. The current development stage is Phase 1/2a study start up with first patient planned in 2018.

Internal Medicine

SHP634 (NATPARA) for the treatment of Hypoparathyroidism in Japan

NATPARA is an approved therapy in the U.S. (NATPARA) and Europe (NATPAR) to treat adults with Hypoparathyroidism. Upon an official request from the Japanese MHLW in May 2016 Shire designed a program for the clinical development of NATPAR in Japan. A Phase 1 (PK/PD in Japanese adults) study is near completion and Shire is planning to initiate a pivotal Phase 3 study in the second half of 2018.

Genetic Disease

SHP611 for the treatment of Metachromatic Leukodystrophy (MLD)

SHP611 is in development as recombinant human arylsulfatase A (rASA) delivered intrathecal 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. Shire initiated a now complete, Phase 1/2, dose-finding clinical trial in the third quarter of 2012. An extension phase of this trial is currently ongoing. Top line results of the 1/2 trial were released in May 2017. Based upon these data, SHP611 appeared to be well tolerated at all doses and demonstrated a dose dependent treatment response in a subset of patients. Shire is currently working with regulatory authorities to define Phase 2b/3 clinical studies to further explore the efficacy of this compound.

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, which 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. Shire and ArmaGen are currently evaluating future development options for this compound.

Collaborative and Other Licensing Arrangements

The Company routinely enters into certain collaborative and licensing arrangements. In some of these arrangements, Shire and the collaboration partner are both actively involved in the development and commercialization of the licensed product and have exposure to risks and rewards dependent on its commercial success.

Generally, through in-licensing arrangements, the Company has licensed certain product or intellectual property rights for consideration such as up-front payments, development milestones, sales milestones and/or royalty payments.

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Out-licensing arrangements generally provide for commercialization rights to a product or products being developed by the counterparty, and in exchange often result in an upfront payment upon execution of the agreement and obligations that the counterparty make specified future development, regulatory approval or commercial milestone payments as well as royalty payments.

Rani Therapeutics, LLC (Rani)

Shire entered into a collaboration agreement with Rani to conduct research on the use of the RANI PILL technology for oral delivery of Factor VIII (FVIII) therapy for patients with hemophilia A. The collaboration agreement grants Shire an exclusive option to negotiate a license to develop and commercialize the technology for delivery of FVIII therapy following completion of feasibility studies. Shire also made an equity investment in Rani.

Novimmune S.A. (Novimmune)

Shire entered into a licensing agreement with Novimmune that grants Shire exclusive worldwide rights to develop and commercialize a bi-specific antibody in pre-clinical development for the treatment of hemophilia A and hemophilia A patients with inhibitors. Under the terms of the agreement, Shire will develop, and if approved, commercialize the product. Shire made an initial upfront license payment. Novimmune will be entitled to receive additional potential milestone payments based on clinical, regulatory and commercial milestones and single-digit royalties.

Parion Sciences, Inc. (Parion)

Shire entered into an agreement to license the exclusive worldwide rights to SHP659 from Parion. SHP659 is a Phase 2 investigational epithelial sodium channel inhibitor for the potential treatment of dry eye disease in adults. Under the terms of the agreement, Shire will develop, and if approved, commercialize this compound. Shire made an initial upfront license payment. Parion will be entitled to receive additional potential milestone payments based on clinical, regulatory and commercial milestones and Parion has the option to co-fund through additional stages of development in exchange for enhanced tiered low double-digit royalties. In addition, Parion has the option to co-fund commercialization activities and participate in the financial outcome from those activities.

Pfizer Inc. (Pfizer)

In July 2016, the Company licensed the global rights to all indications for SHP647 from Pfizer. SHP647 is an investigational biologic being evaluated for the treatment of moderate-to-severe inflammatory bowel disease. Under the terms of the agreement, Pfizer received an upfront payment and eligible to receive milestone payments based on clinical, regulatory and commercialization milestones and low double-digit royalties on any potential sales if the product is approved.

Precision BioSciences, Inc. (Precision)

Shire acquired a strategic immuno-oncology collaboration with Precision. Together, Shire and Precision plan to develop chimeric antigen receptor (CAR) T cell therapies for up to six unique targets. On a product-by-product basis, following successful completion of early-stage research activities up to and including Phase 2 clinical trials, Shire will have exclusive option rights to complete late-stage development and worldwide commercialization. Precision is responsible for development costs for each target prior to such option exercise. Precision also has the right to participate in the development and commercialization of any licensed products resulting from the collaboration through a 50/50 co-development and co-promotion option in the United States.

Symphogen

Shire acquired a strategic immuno-oncology collaboration with Symphogen. Shire and Symphogen plan to develop checkpoint inhibitor therapies for up to six unique targets. On a product-by-product basis, following successful completion of early-stage research activities up to and including Phase 1 clinical trials, Shire will have exclusive option rights to complete late-stage development and worldwide commercialization. Symphogen is responsible for development costs for each target prior to such option exercise.


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Ipsen

Shire acquired an exclusive license agreement with Ipsen's predecessor, Merrimack Pharmaceuticals, Inc., relating to the development and commercialization of ONIVYDE (nanoliposomal irinotecan injection) (nal-IRI). The arrangement includes all potential indications for nal-IRI across all markets with the exception of the U.S. and Taiwan. The first indication being pursued is for the treatment of patients with metastatic pancreatic cancer who were previously treated with gemcitabine-based therapy.

AB Biosciences, Inc. (AB Biosciences)

On January 25, 2018, Shire entered into a licensing agreement with AB Biosciences. The license grants Shire exclusive worldwide rights to develop and commercialize a recombinant immunoglobulin product candidate. Under the terms of the agreement, AB Biosciences will grant Shire an exclusive, worldwide license to its intellectual property relating to its pan receptor interacting molecule program. AB Biosciences will receive an upfront license fee payment and is eligible to receive contingent research, development, and commercialization milestone as well as royalty payments.

Manufacturing and Distribution

Drug Substance & Active Pharmaceutical Ingredient (API) sourcing

The Company sources API from third party suppliers for: VYVANSE, INTUNIV, ADDERALL XR, MYDAYIS, LIALDA, FOSRENOL, PENTASA, XAGRID, RESOLOR, EQUASYM, CARBATROL, XIIDRA, CINRYZE, FIRAZYR, PLENADREN, BUCCOLAM, NATPARA, GATTEX, KALBITOR and ONCASPAR.

The Company has manufacturing capability for REPLAGAL agalsidase alfa, ELAPRASE idursulfase and VPRIV velaglucerase alfa at its protein manufacturing plants in Cambridge and Lexington, Massachusetts, U.S.

The Company has manufacturing capability for Antihemophilic Factor (Recombinant), Antihemophilic Factor (Recombinant, PEGylated), Antihemophelic factor (Recombinant), von Willebrand factor (recombinant), Coagulation Factor IX, Anti-Inhibitor Coagulant Complex, Antihemophilic Factor (Recombinant) Porcine Sequence, Antihemophilic Factor [Human], Method M, Monoclonal purified at its manufacturing plants in Switzerland, Massachusetts, California, Austria, Belgium and Singapore for ADVATE, ADYNOVATE, RECOMBINATE, VONVENDI, RIXUBIS, FEIBA, OBIZUR and HEMOFIL M, respectively.

The Company has manufacturing capability for Immune Globulin Intravenous (Human), Immune Globuline Infusion 10% (Human) with Recombinant Human Hyaluronidase, Immune Globulin Subcutaneous (Human), Albumin (Human), Protein C Concentrate (Human), Alpha 1 Proteinase Inhibitor (Human), Antithrombin III Concentrate (Human), Human Coagulation Factor VIII/Human Von Willebrand Factor (VWF) Complex Concentrate, Coagulation Factor IX (Human) Concentrate, at its manufacturing plants in Austria, California, Belgium, Illinois and Italy for GAMMAGARD LIQUID/KIOVIG, GAMMAGARD S/D, HYQVIA, CUVITRU, FLEXBUMIN, BUMINATE, CEPROTEIN, GLASSIA, ARALAST, ANTITHROMBIN III, IMMUNATE, IMMUNINE and FACTOR VII respectively. In addition, the Company also has dual sourcing for Immune Globulin Intravenous (Human) and Albumin (Human) and GLASSIA via external sources of supply.

The Company currently has dual sources of API for VPRIV, VYVANSE and INTUNIV and is qualifying a second source for XIIDRA.

The Company has two locations approved for the purification of REPLAGAL drug substance, three locations approved for the cell culture and purification of ADVATE and two locations approved for the cell culture of ELAPRASE drug substance.

The Company manages the risks associated with reliance on single sources of API by carrying additional inventories or developing second sources of supply or through multiple sites with the same supplier.


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CINRYZE API is derived from human plasma sourced from commercial plasma suppliers. The sourcing of plasma and the production of products derived from plasma are regulated extensively by the FDA, the EMA and other medical product and health care regulatory agencies. For CINRYZE, the Company relies on a combination of sources for plasma including long term supply agreements and periodic “spot purchases” of plasma from third party plasma suppliers. For the year ended December 31 2017, Shire had a sole third party manufacturer of CINRYZE. A manufacturing interruption led to product shortages in August 2017. The manufacturer addressed the issue and resumed production in October 2017. On January 24, 2018, Shire announced that the FDA had granted approval for the technology transfer of CINRYZE drug product manufacturing process to its Vienna, Austria manufacturing site. Shire will begin commercial manufacturing of CINRYZE drug product in Vienna in the first quarter of 2018.

Finished Product Manufacturing

The Company sources its products: VYVANSE, INTUNIV, ADDERALL XR, MYDAYIS, LIALDA, PENTASA, FOSRENOL, EQUASYM, RESOLOR, CARBATROL, XIIDRA, BUCCOLAM, CINRYZE, PLENADREN, REMINYL, GLASSIA and XAGRID, from third party contract manufacturers.

The finished products for REPLAGAL, ELAPRASE, VPRIV, FIRAZYR, NATPARA, GATTEX, ONIVYDE, ONCASPAR, KALBITOR and OBIZUR are manufactured by contract manufacturers specializing in aseptic fill-finish operations.

The Company currently has dual sources for finished product manufacturing for ELAPRASE, REPLAGAL, VPRIV, ADVATE and VYVANSE and is developing a second source for the finished product manufacturing of XIIDRA and ADDERALL XR. The Company manages the risks associated with reliance on single sources of production by carrying additional inventories.

The Company has finished product manufacturing capability for Antihemophilic factor (Recombinant), Antihemophilic factor (Recombinant, PEGylated), Antihemophelic factor (Recombinant), von Willebrand factor (recombinant), Coagulation Factor IX, Anti-Inhibitor Coagulant Complex, Antihemophilic factor [Human], Method M, Monoclonal Purified at its manufacturing plants in Switzerland, California, and Austria for ADVATE, ADYNOVATE, RECOMBINATE, RIXUBIS, VONVENDI, FEIBA and HEMOFIL M, respectively.

The Company has manufacturing capability for Immune Globulin Intravenous (Human), Immune Globuline Infusion 10% (Human) with Recombinant Human Hyaluronidase, Immune Globulin Subcutaneous (Human), Albumin (Human), Protein C Concentrate (Human), Alpha 1 Proteinase Inhibitor (Human), Antithrombin III Concentrate (Human), Human Coagulation Factor VIII/Human Von Willebrand factor (VWF) Complex Concentrate, Coagulation Factor IX (Human) Concentrate, at its manufacturing plants in Austria, California, Belgium, Illinois and Italy for GAMMAGARD LIQUID/KIOVIG, GAMMAGARD S/D, HYQVIA, CUVITRU, FLEXBUMIN, BUMINATE, CEPROTEIN, GLASSIA, ARALAST, ANTITHROMBIN III, IMMUNATE, IMMUNINE and FACTOR VII.

Distribution

The Company’s U.S. distribution center, which includes a large vault to house U.S. Drug Enforcement Administration (DEA) regulated Schedule II products, is located in Kentucky. From there, the Company primarily distributes its products: VYVANSE, INTUNIV, ADDERALL XR, MYDAYIS, LIALDA, PENTASA, FOSRENOL, XAGRID and XIIDRA to the U.S. market through the three major wholesalers who have hub or distribution centers that stock Schedule II drugs in the U.S., providing access to nearly all pharmacies in the U.S.

The distribution and warehousing of products: REPLAGAL, ELAPRASE, VPRIV, NATPARA, GATTEX, KALBITOR and FIRAZYR for the U.S. market are contracted out to specialist third party logistics providers.

The distribution and warehousing of products: ADVATE, ADYNOVATE, RECOMBINATE, RIXUBIS, VONVENDI, OBIZUR, ONCASPAR, FEIBA, Immune Globulin Intravenous (Human), Immune Globuline Infusion 10% (Human) with Recombinant Human Hyaluronidase, Immune Globulin Subcutaneous (Human), Albumin (Human), GLASSIA, ARALAST and HEMOFIL M, for the U.S. market are contracted to third party logistics providers.

Outside of the U.S., physical distribution of Company’s products is either contracted out to third parties (where the Company has local operations) or facilitated via distribution agreements (where the Company does not have local operations).


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Sources and Availability of Raw Materials

Shire purchases, in the ordinary course of business, raw materials and supplies essential to its operations from numerous suppliers around the world, including in the U.S. While efforts are made to diversify Shire’s sources of components and materials, in certain instances Shire acquires components and materials from a sole supplier.

Human plasma is a critical raw material in Shire’s business. The Company believes that its ability to internally and externally source plasma represents a distinctive and flexible infrastructure, which provides the Company a unique capability with respect to the consistent delivery of high quality plasma-based products. Shire owns and operates plasma collection facilities in the U.S. and Austria through its wholly owned subsidiary BioLife Plasma Services L.P. (BioLife). BioLife operates and maintains more than 90 plasma collection facilities in 24 states throughout the U.S. and at seven locations in Austria. Shire also maintains relationships with other plasma suppliers to ensure that it retains the flexibility to meet market demand for its plasma based therapies.
 
Material Customers
 
Shire’s three largest trade customers are AmerisourceBergen Corporation, McKesson Corp and Cardinal Health, Inc., which are based in the U.S. In 2017, these wholesale customers accounted for approximately 10%, 9% and 7% of Product sales, respectively.
 
Intellectual Property

An important part of the Company’s business strategy is to protect its products and technologies through the use of patents and trademarks, to the extent available. The Company also relies on trade secrets, proprietary know-how, technological innovations and contractual arrangements with third parties to maintain and enhance its competitive position. The Company’s commercial success will depend, in part, upon its ability to obtain and enforce strong patents, to maintain trade secret protection, to operate without infringing the proprietary rights of others and to comply with the terms of licenses granted to it. The Company’s policy is to seek patent protection for proprietary technology whenever possible in the U.S., Canada, major European countries and Japan. Where practicable, the Company seeks patent protection in other countries on a selective basis. In all cases, the Company endeavors to either obtain patent protection itself or support patent applications by its licensors.

Regulatory exclusivity can also provide meaningful protection for the Company’s products. Although the World Trade Organization's agreement on trade-related aspects of intellectual property rights (TRIPS) requires signatory countries to provide regulatory exclusivity to innovative pharmaceutical products, implementation and enforcement varies widely from country to country. The markets for some of the Company’s currently marketed and potential future products, such as those for rare diseases, are small and where possible the Company has sought and will seek orphan drug designation for products directed to these markets which, if granted, provides regulatory exclusivity for seven years in the U.S. and ten years in the EU from the date of product approval (see Government Regulation below).

In the regular course of business, the Company’s patents may be challenged by third parties. The Company is a party to litigation or other proceedings relating to intellectual property rights. Details of material ongoing litigation are provided in ITEM 3: Legal Proceedings and Note 25, Legal and Other Proceedings, to the Consolidated Financial Statements set forth in this Annual Report on Form 10-K.

The degree of patent protection afforded to pharmaceutical inventions around the world is uncertain. If patents are granted to other parties that contain claims having a scope that is interpreted by the relevant authorities to cover any of the Company’s products or technologies, there can be no guarantee that the Company will be able to obtain licenses to such patents or make other arrangements at reasonable cost, if at all.


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The existence, scope and duration of patent protection varies among the Company’s products and among the different countries where the Company’s products may be sold. They may also change over the course of time as patents are granted or expire, or become extended, modified or revoked. The following table shows the patent numbers that are listed in the Patent and Exclusivity Information Addendum of the FDA’s publication, Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book), for some of the Company’s more significant, revenue-generating products approved via an NDA or an NDA under Section 505(b)(2) under the Federal Food, Drug, and Cosmetic Act that references a previously approved drug, which are owned by or licensed to the Company and relevant to an understanding of the Company’s business taken as a whole. There may be other patents related to these products, methods of manufacturing, or use of the products in the treatment of particular diseases or conditions that are not listed in the Orange Book. Some of the Company’s other products are biologics which are protected by patents and forms of unpatented confidential information, including manufacturing trade secrets and proprietary know-how, that are not listed in the Orange Book. In addition, expiration dates set forth below do not necessarily reflect possible changes to the patent term afforded by, among other things, patent term extensions in the U.S. or other territories or changes that may result as a consequence of the outcome of litigation or other proceedings. The Company also holds patents in other jurisdictions, such as the EU, Canada and Japan, and has patent applications pending in such jurisdictions, as well as in the U.S.

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Product
 
Orange Book listed U.S. patent
 
Expiration date
ADDERALL XR
 
US 6322819
US RE41148
US 6605300
US RE42096
 
October 21, 2018
October 21, 2018
October 21, 2018
October 21, 2018
FIRAZYR
 
US 5648333
 
July 15, 2019
LIALDA/MEZAVANT
 
US 6773720
 
June 8, 2020
VYVANSE
 
US 7105486
US 7223735
US 7655630
US 7659253
US 7659254
US 7662787
US 7662788
US 7671030
US 7671031
US 7674774
US 7678770
US 7678771
US 7687466
US 7687467
US 7700561
US 7713936
US 7718619
US 7723305
 
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
GATTEX/REVESTIVE
 
US 5789379
US 7056886
US 7847061
US 9060992
US 9539310
US 9545434
US 9545435
US 9555079
US 9572867
US 9592273
US 9592274
 
April 14, 2020
September 18, 2022
November 1, 2025
November 1, 2025
November 1, 2025
November 1, 2025
November 1, 2025
November 1, 2025
November 1, 2025
November 1, 2025
November 1, 2025
XIIDRA
 
US 7314938
US 7745460
US 7790743
US 7928122
US 8084047
US 8168655
US 8367701
US 8592450
US 8927574
US 9085553
US 9216174
US 9353088
US 9447077
 
March 10, 2025
November 5, 2024
November 5, 2024
November 5, 2024
May 17, 2026
May 9, 2029
April 15, 2029
May 17, 2026
November 12, 2030
July 25, 2033
November 5, 2024
October 21, 2030
April 15, 2029
MYDAYIS
 
US RE41148
US RE42096
US 6913768
US 8846100
US 9173857
 
October 21, 2018
October 21, 2018
May 24, 2023
August 24, 2029
May 12, 2026


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Competition for Shire Products

Shire believes that competition in its markets is based on, among other things, product safety, efficacy, convenience of dosing, reliability, availability and price. Other products now in use or being developed by others may be more effective or have fewer side effects than the Company’s current or future products.

Hematology

Treatments for Hemophilia

The principal sources of competition for ADVATE and ADYNOVATE globally are: XYNTHA/REFACTO AF (Pfizer and SOBI); KOGENATE (Bayer); HELIXATE (CSL); KOVALTRY (Bayer); Iblias (CSL); ELOCTATE/ELOCTA (Bioverativ and SOBI); NOVOEIGHT (Novo Nordisk); and NUWIQ (Octapharma); Afstyla (CSL).

Potential future competitors include: ALN-AT3 (Alnylam), N8-GP (Novo Nordisk), BAY94-9027 (Bayer), HEMLIBRA (Roche and Genentech); VV-001 (Bioveritiv) and anti-TFPI (Novo Nordisk, Bayer and Pfizer). In addition, there are a number of gene therapy technologies in development, such as Biomarin, Spark and Sangamo.

Treatments for von Willebrand Disease

VONVENDI competes in the U.S. with Humate-P (CSL Behring), Wilate (Octapharma), and non-factor products DDAVP (desmopressin).

Treatments for Patients with Inhibitors

The principal sources of competition for FEIBA globally are NOVOSEVEN/NOVOSEVEN RT (Novo Nordisk); Coagil VII (Pharmstandard); and FACTEUR VII-LFB (LFB Group) and HEMLIBRA in the U.S.

Potential future competitors include: ALN-AT3 (Alnylam), rFVII’s  (Catalyst, OPKO Health and rEVO Biologics), and anti-TFPI programs (Novo Nordisk, Bayer and Pfizer).

Genetic Diseases

REPLAGAL primarily competes with Genzyme’s FABRAZYME and Amicus' GALAFOLD in markets outside the U.S. Additionally, Isu Abaxis' FABAGAL is registered in South Korea. Potential future competitors include compounds being developed by Genzyme, Protalix, JCR Pharmaceuticals Co. Ltd, Idorsia, Greenovation, Avrobio and Resverlogix.

VPRIV competes with two ERTs, Genzyme’s CEREZYME (imiglucerase) and Pfizer/Protalix’s ELELYSO/UPLYSO (tagliglucerase), as well as two oral substrate reduction therapies, Actelion’s ZAVESCA (miglustat) and Genzyme’s CERDELGA (eliglustat). A biosimilar to CEREZYME (Abcertin) has been launched by Isu Abxis in South Korea, Mexico and Iran. Potential future competitors include compounds being developed by Genzyme and Orphazyme.

ELAPRASE is the only product licensed to treat Hunter syndrome in all the markets in which it is registered except South Korea and Algeria, where Green Cross Corporation has been granted approval for HUNTERASE. Potential future competitors include compounds being developed by Sangamo, JCR and REGENXBIO.

Neuroscience

ADHD market

Competition in the U.S. ADHD market has increased with the launch of competing products in recent years, including authorized generic and generic versions of CONCERTA, RITALIN LA, ADDERALL XR, FOCALIN XR, as well as non-stimulants INTUNIV, STRATERRA and KAPVAY.

Potential future competitors include compounds in development by Lilly, Otsuka Pharmaceutical Co., Ltd., Purdue, Alcobra (in collaboration with Teva), Neuroderm, Durect Pharma, Pfizer/Tris, Neos, Ironshore, Sunovion, Arbor, KemPharm, Aevi Genomic Medicine and Supernus.


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BED Market

VYVANSE is the only product approved in the U.S. for the treatment of moderate to severe BED in adults. The potential future competitors include compounds in development by Sunovion Pharmaceuticals, Takeda Pharmaceuticals and Ironshore Pharmaceuticals/Highland Therapeutics.

Immunology

Treatments for Primary Immunodeficiency

GAMMAGARD LIQUID and/or KIOVIG compete with CSL’s PRIVIGEN and CARIMUNE, Grifol’s GAMUNEX-C and FLEBOGAMMA, Biotest’s BIVIGAM, Kendrion’s GAMMAKED, BPL’s GAMMAPLEX and Octapharma’s OCTAGAM and PANZYA.

GAMMAGARD LIQUID, HYQVIA, and/or CUVITRU compete with CSL’s HIZENTRA, Grifol’s GAMUNEX-C and Octapharma’s GAMMANORM.

Potential future indications include programs in development by CSL and Grifols.

Biotherapeutics

FLEXBUMIN and Human Albumin compete with CSL’s ALBUREX/ALBURX and ALBUMNAR, Grifol’s PLASBUMIN and ALBUTEIN, Octapharma's Albunorm and Kedrion’s KEDBUMIN.

Potential future competitors include a development program by Grifols for albumin in bags.

Treatments for Hereditary Angioedema (HAE)

FIRAZYR competes in the U.S. and Europe with CSL Behring’s BERINERT and Pharming Group N.V.’s and RUCONEST for acute treatment of HAE. In other markets, FIRAZYR competes with BERINERT.

CINRYZE competes in the U.S. and non-U.S. markets with generic androgens and in the U.S. with HAEGARDA (a subcutaneous formulation of BERINERT) for prophylaxis of HAE. In non-U.S. markets, CINRYZE is also indicated for acute treatment and short-term prophylaxis of HAE; BERINERT competes with these indications in the EU.

Potential future competitors include a subcutaneous formulation of BERINERT (known as HAEGARDA in the U.S.), a possible expanded indication for RUCONEST (Pharming) as prophylaxis, and an oral kalikrein inhibitor (Biocryst, Pharming). In addition, a number of companies have molecules in discovery phase.

Internal Medicine

Ulcerative Colitis market

Principal competitors (from mild to moderate) of the major markets include DELZICOL, ASOCOL and ASACOL HD/ASACOL 800 (Allergan, Tillots and various other licensees), ASPIRO (Valeant), PENTASA (marketed by Ferring Pharmaceuticals, outside of U.S. only), SALOFALK and CLAVERSAL (Faes Farma, Recordati S.p.A). Mesalamine generics are available in several markets including the U.S.

In higher lines of therapy (from moderate to severe) principal competitors are TNF-alpha inhibitors (e.g. REMICADE by Janssen, HUMIRA by AbbVie) and their biosimilars and integrin inhibitor vedolizumab (ENTYVIO by Takeda). Potential future competitors currently under development are e.g. integrin inhibitor (ETROLIZUMAB by Roche), IL12/IL23 inhibitors (e.g.  USTEKINUMAB by Janssen, RISANKIZUMAB by AbbVie) and novel oral therapies with new MoAs including JAKs (e.g. TOFACITINIB by Pfizer).


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Short Bowel Syndrome Market

GATTEX competes in a small patient sub-segment in the U.S. with EMD/Serono's ZORBTIVE (somatotropin) and Emmaus LifeSciences' NUTRESTORE (L-glutamine). REVESTIVE is the only product approved to treat SBS in Europe. Potential future competitors include compounds being developed by Zealand Pharma and Naia Ltd.

Hypoparathyroid Market

NATPAR/A has no licensed competition in Hypoparathyroidism. Potential future competitors include compounds being developed by EnteraBio and Chugai.

Oncology

ONIVYDE

ONIVYDE is indicated for the treatment of metastatic adenocarcinoma of the pancreas, in combination with 5-fluorouracil (5-FU) and leucovorin (LV), in adult patients who have progressed following gemcitabine-based therapy. There are currently no combinations or single agent that are the approved “standard of care” in the second or third line setting. The combination therapy used prior to ONIVYDE’s approval all contained generics.

Potential future competitors include Astra Zenaca’s LYNPARZA, Taiho’s TAS-118 and Eleison’s glufosfamide.

ONCASPAR

ONCASPAR is pegylated asparaginase indicated as a component of a multi agent chemotherapeutic regimen for the treatment of pediatric and adult patients with first line acute lymphoblastic leukemia (ALL) and patients that are hypersensitive to native asparaginase. In certain markets, native asparaginases derived from E. Coli may still be used. ONCASPAR competes with Medac’s SPECTRILA, a recombinant version of asparaginase which was recently approved in the EU.

Potential competitors include Jazz’s ERWINASE/ERWINAZE, and Erytech’s GRASPA. There are also a number of biosimilars in preclinical development.

Ophthalmics

XIIDRA is the first and only prescription eye drop indicated for the treatment of both signs and symptoms of dry eye disease in the U.S. and Canada. XIIDRA competes against Allergan's RESTASIS (a prescription topical immunomodulator indicated to increase tear production in patients whose tear production is presumed to be suppressed due to ocular inflammation associated with keratoconjunctivitis sicca) and various over the counter artificial tear products. Potential future competitors include T-1580 from Laboratoire Thea, SECIERA from Sun Pharma, KP-121 from Kala, RGN-259 from RegeneRx and SYL1001 from Sylentis.

Government Regulation
 
The clinical development, manufacturing and marketing of Shire’s products is subject to significant governmental regulation in the U.S., the EU and other territories. The Federal Food, Drug, and Cosmetic Act, the Prescription Drug Marketing Act, the Public Health Service Act and other laws and regulations in the U.S., as well as numerous directives and guidelines in the EU, govern the development, design, non-clinical and clinical research, testing, manufacture, safety, efficacy, labeling, packaging, storage, record keeping, premarket clearance or approval, adverse event reporting, advertising and promotion of the Company’s products. Product development and approval within these regulatory frameworks takes a number of years and involves the expenditure of substantial resources. Pharmaceutical and medical device manufacturers are also inspected regularly by the FDA.


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In general, pharmaceutical and biotechnology products must undergo rigorous preclinical testing. Clinical trials for new products are typically conducted in three sequential phases that may overlap. In Phase 1, the initial introduction of the product into healthy human volunteers, the emphasis is on testing for safety (adverse effects), dosage tolerance, metabolism, distribution, excretion and clinical pharmacology. Phase 2 involves studies in a limited patient population to determine the initial efficacy of the product for specific targeted indications, to determine dosage tolerance and optimal dosage and to identify possible adverse side effects and safety risks. Once a product is found to be effective and to have an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken with a larger number of patients to provide enough data to statistically evaluate the efficacy and safety of the product and to evaluate more fully clinical outcomes. The failure to demonstrate adequately the quality, safety and efficacy of a product under development can delay or prevent regulatory approval of the product.

In order to gain marketing approval the Company must submit to the relevant regulatory authority for review information on the quality (chemistry, manufacturing and pharmaceutical) aspects of the product as well as the non-clinical and clinical data. The FDA undertakes this review for the U.S. In the EU, the review may be undertaken by the following: (i) members of the EMA’s Committee for Medicinal Products for Human Use as part of a centralized procedure; (ii) an individual country's regulatory agency, followed by “mutual recognition” of this review by a number of other countries' agencies, depending on the process applicable to the product in question; or (iii) a competent member state’s regulatory agency through a decentralized procedure, an alternative authorization procedure to the “mutual recognition” procedure.

Approval can take several months to several years, or be denied. The approval process can be affected by a number of factors. For example, additional studies or clinical trials may be requested during the review and may delay marketing approval and involve unbudgeted costs. After approval for the initial indication, further clinical studies are usually necessary to gain approval for any additional indications. The terms of any approval, including labelling content, may be more restrictive than expected and could affect the marketability of a product.

As a condition of approval, the regulatory agency will require that the product continues to meet regulatory requirements as to quality, safety and efficacy and will require strict procedures to monitor and report any adverse effects. Where adverse effects occur or may occur, the regulatory agency may require additional studies or changes to the labelling (for example, application of a “black box” warning). Compelling new “adverse” data may result in a product approval being withdrawn at any stage following review by an agency and discussion with the Company.

Some jurisdictions, including the EU and the U.S., may designate products for disease treatment within a relatively small patient population as orphan drugs. Generally, if a product that has an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to orphan drug exclusivity. Orphan drug exclusivity means that applications to market the same product for the same indication may not be approved, except in limited circumstances, for a period of up to ten years in the EU and for up to seven years in the U.S. A key provision of 21st Century Cures initiative, as specifically codified in the 21st Century Cures Act, is the Rare Pediatric Disease (RPD) Priority Review Voucher (PRV). The RPD PRV program provides a voucher for a six-month FDA priority review for any product that receives successful approval as an orphan drug to treat a rare pediatric disease. These laws are particularly pertinent to Shire’s rare disease products and are constantly being scrutinized by Congress, with no guarantee that they will continue.


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In the U.S., the Drug Price Competition and Patent Restoration Term Act of 1984, known as the U.S. Hatch-Waxman Act, established a period of marketing exclusivity for brand-name drugs as well as abbreviated application procedures for generic versions of those drugs. Once the applicable exclusivity period for the brand-name drug has expired (which may range from three to five years), generic manufacturers may file with the FDA for approval to manufacture and market generic versions of the brand-name drug. Approval is sought by filing an Abbreviated New Drug Application (ANDA). As a substitute for conducting full-scale pre-clinical and clinical studies, the FDA can accept data establishing that the drug formulation, which is the subject of an abbreviated application, is bio-equivalent and has the same therapeutic effect as the previously approved drug, among other requirements. EU legislation also contains data exclusivity provisions. All medicinal products will be subject to an “8+2+1” exclusivity regime. A generic company may file a marketing authorization application for that product with the health authorities referencing the innovator’s data eight years after the innovator has received its first community authorization for a medicinal product. The generic company may not commercialize the product until after either 10 (8+2) or 11 years (8+2+1) have elapsed from the date of grant of the initial marketing authorization. The one-year extension is available if the innovator obtains an additional indication during the first eight years of the marketing authorization that is of significant advancement in clinical benefit. While the U.S. Hatch-Waxman Act addresses the development and entrance of generic products, the ACA amended the Public Health Service Act to create an abbreviated licensure pathway for biological products that are demonstrated to be “biosimilar” to or “interchangeable” with an FDA-licensed biological product. The Biologics Price Competition and Innovation Act of 2009 allow for approval of a biosimilar if data substantiates that the product is “highly similar” to an approved and existing biological product. Furthermore, as codified in the 2016 Physician Fee Schedule Final Rule, effective January 1, 2016, the physician reimbursement amount for a biosimilar is based on the average sales price (ASP) of all NDCs assigned to the biosimilars included within the same billing and payment code. Similar to a non-biologic product, an interchangeable biological product may be substituted for the reference product by a pharmacist without the intervention of the health care provider who prescribed the reference product. Generally, there will be a common physician reimbursement limit and HCPCS code for those biosimilars referenced to the original product filed under the BLA.

In the U.S., the DEA regulates the national production and distribution of scheduled drugs (i.e. those drugs containing controlled substances) by allocating production quotas based, in part, upon the DEA’s view of national demand. As scheduled drugs, the production and distribution of Shire’s stimulant ADHD products (ADDERALL XR, VYVANSE, MYDAYIS and EQUASYM) are strictly controlled and supply of active ingredient is dependent on the DEA’s permitted annual quotas and its willingness to update those quotas to meet any shortage of drugs.

The branch of the FDA responsible for product marketing oversight routinely reviews company marketing practices and also may impose pre-clearance requirements on materials intended for use in marketing of approved drug products. Shire is subject to various U.S. federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback and false claims laws. Similar review and regulation of advertising and marketing practices exists in the other geographic areas where the company operates.

The FDA has broad regulatory compliance and enforcement powers. If the FDA determines that a company failed to comply with applicable regulatory requirements and current good manufacturing procedures (cGMPs), it can take a variety of compliance or enforcement actions, such as issuing an FDA Form 483 notice of inspectional observations, a warning letter, an untitled letter, imposing civil money penalties, suspending or delaying issuance of approvals, requiring product recall, imposing a total or partial shutdown of production, withdrawal of approvals or clearances already granted, pursuing product seizures, consent decrees or other injunctive relief, or criminal prosecution through the Department of Justice. The FDA can require a Company to repair, replace or refund the cost of products that the Company manufactured or distributed. Outside the U.S., regulatory agencies may exert a range of similar powers.

The Department of Health and Human Services (HHS) administers the Medicare and Medicaid programs, major government payers for the elderly, disabled and poor in the U.S., respectively. Shire is subject to various mandated discounts and rebates, as well as compliance requirements, in order to participate in these programs. HHS will be interpreting, implementing and enforcing manufacturers’ compliance with rebate payments, discounts and mandated price reporting changes under the PPACA.
 

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Regulatory Developments
 
In the U.S., Executive Orders and various legislative proposals at the federal and state levels could bring about major changes in the affected health care systems. Some states have passed such legislation, and further federal and state proposals are possible. Such proposals and legislation include, and future proposals could include, price controls, patient access constraints to medicines, cost sharing through improved patient health outcomes, abbreviated licensure pathway for biosimilars and increases in required rebates or discounts. Similar initiatives exist in the EU. The Company cannot predict the outcome of such initiatives, but will work to maintain patient access to its products and to oppose price constraints. Additionally, legislation is being debated at the federal and state level in the U.S. that could allow patient access to drugs approved in other countries, most notably Canada. This is generally referred to as drug importation. Although there is substantial opposition to this potential legislation within areas of the federal government, including the FDA, the Company cannot predict the outcome of such legislative activities. Several local U.S. jurisdictions, including the King County of Washington State and Alameda, San Francisco and San Mateo Counties in California, have imposed drug-disposal responsibilities and fees on drug manufacturers, with other municipalities and localities passing similar ordinances.

Furthermore, several agencies in the U.S., including the Office of Inspector General, Department of Justice and DEA have been stepping up their enforcement activities as part of the ACA, leading to the imposition of an increasing number of Corporate Integrity Agreements with pharmaceutical and biotechnology companies as part of ultimate settlements.

Aggressive drug price actions taken in the U.S. by various manufacturers over the last several years has precipitated a media maelstrom and reinvigorated a hypersensitive atmosphere regarding the cost of drugs charged by manufacturers. While it is uncertain whether the U.S. Federal government will implement price controls in the near or midterm time frame, multiple states have proposed price control legislation and transparency initiatives. Though several states have been unsuccessful with passing legislation (e.g., North Carolina, Oregon, Pennsylvania), California and Maryland have both passed similar laws to Vermont’s S. 216, which is designed to enable prescription drug cost transparency for the state and codifies an inquiry to manufacturers when there is an excessive increases to the lists price of drugs. In addition, New York has passed a Medicaid drug spending cap that may require additional rebates from manufacturers, while Massachusetts is attempting to legislate and create a closed formulary in Medicaid in order to obtain lower drug prices and enhanced rebates. There is a high probability that other states will pass new price constraint or price transparency laws in 2018. Despite the attention on price increases, historically Shire has taken a responsible approach to price increases.

Similar regulatory and legislative considerations are encountered in Europe and other international markets where governments regulate pharmaceutical prices and patient reimbursement levels. The differing approach to price regulation has led to some parallel trade within the EU where Shire’s products are imported into markets with higher prices from markets with lower prices. Exploitation of price differences between countries in this way can adversely impact domestic sales in those markets with higher prices.
 
Ethics and Compliance

In order to maintain compliance with the laws and regulations mentioned above, as well as other healthcare related laws and regulations, Shire has established a comprehensive global ethics and compliance program. The program is intended to prevent, detect and mitigate risk across the organization and throughout the lifecycle of Shire’s products. Shire’s program is founded on a culture and expectation of compliance at all levels of the organization. It also includes, among other things, resources to address compliance globally; formal compliance governance; mechanisms to intake and address questions and concerns; policies, processes and procedures; communications; training; various forms of risk-based auditing and monitoring; review of alleged misconduct; and, when necessary, disciplinary action for failure to comply. All of these actions are intended to protect Shire from conduct by individual employees and agents that may be in violation of legal and regulatory requirements and the Company’s compliance expectations.


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Compliance with applicable laws and regulations is costly and materially affects Shire’s business. Shire expects that compliance with laws and regulations around the globe increasingly will require significant technical expertise and capital investment. Healthcare regulations substantially increase the time, difficulty and costs incurred in obtaining approval to market and promote products, and Shire’s potential failure to meet its compliance obligations may result in regulatory and enforcement actions, the seizure or recall of products, the suspension or revocation of the authority necessary for product production and sale, and other civil or criminal sanctions, including fines and penalties. The Company expects to continuously devote substantial resources to proactively maintain, administer and expand its ethics and compliance program globally.

Third Party Reimbursement and Pricing

The Company’s revenue depends, in part, upon the price that third parties, such as health care providers and governmental organizations, reimburse on behalf of patients and physicians for the cost of the Company’s products or competitive products and treatments. These third party payers increasingly are challenging the pricing of drugs and medical devices through tougher contracting and seeking increased pharmaco-economic data in order to justify the pricing of products. In some states, Medicaid is changing its reimbursement for retail and specialty drugs from Wholesale Acquisition Cost (WAC) or ASP based reimbursement to either Actual Acquisition Cost (AAC) or National Average Drug Acquisition Cost (NADAC). Alternatives to how Medicaid rebates are divided by the state and federal government are also occurring. All of these factors can affect the access to Shire's drugs.

In the U.S.

Commercial Managed Care

Commercial payers negotiate the pricing of products to control their costs, including the use of formularies to encourage members to utilize preferred products with favorable terms. Exclusion from a formulary, or a disfavored formulary position, can directly reduce product usage in the payer’s patient population and may negatively impact utilization in other payer plans as well. The consolidation of Pharmacy Benefits Managers (PBMs) may result in increased pricing pressure from the larger purchasing power of such consolidated entities. Whether manufacturers can continue to issue coupons for managed care members, without being removed from the plan’s formulary, will also affect utilization of a manufacturer’s drugs. California recently passed legislation, joining Massachusetts, banning the use of manufacturer sponsored copay assistance programs. Where copay assistance was provided, several commercial payers will not allow the cost of drugs to count towards a patient’s deductible. Although the Secretary of HHS has approved the use of coupons for health exchange (HIX) plans, several groups are fighting the implementation of the guidance. Overall drug usage could increase due to the expansion of covered lives under the ACA albeit with greater rebate liability.

Medicaid

Many of the Company’s products are reimbursed by Medicaid, a joint federal and state health insurance plan for low-income individuals and people with disabilities in the U.S. Medicaid mandates federal rebates from manufacturers for participation in the program. Many states outsource management of Medicaid benefits to third parties (Managed Medicaid or MMC), leaving it to them to negotiate commercial rebates and formulary position with manufacturers. Due to changes within the ACA, utilization adjudicated by commercial Managed Medicaid payers is also eligible for the mandated federal rebates, which were traditionally paid only on fee-for-service utilization. Other states manage their own formulary and require manufacturers to pay additional “state supplemental” rebates for positioning on its preferred drug list (PDL). In addition, several states have started actively managing hemophilia and other specialty drug costs, either through first-time PDLs or through adjustments in their reimbursement rates to providers.

Medicare

As specified by the 21st Century Cures Act, passed into law in December 2016, Medicare reimbursement for durable medical equipment (DME) infused drugs and biologics (e.g., subcutaneous administration delivered via a pump) changed from average wholesale price (AWP) minus 5% to average sales price (ASP) plus 6% (AWP - 5% to ASP +6%) effective January 1, 2017. In addition, beginning January 1, 2017, DME infused drugs may not be included in the DME competitive acquisition program (DME competitive bidding).


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Medicare reimbursement rates for physician infused drugs, including some of Shire’s orphan drugs, have been reduced from 106% of ASP to approximately 104% of ASP as a result of the so-called "sequestration" passed into law several years ago. CMS recently finalized regulation reducing Medicare reimbursement to hospitals for Part B drugs purchased under the 340b program from 104% ASP to ASP-22%. CMS is also increasingly bundling drug reimbursement into procedure costs, which can severely decrease the reimbursement rates to physicians for some manufacturers’ drugs, biologicals and medical devices. As part of the American Recovery and Reinvestment Act of 2009 (ARRA), Medicare reimbursement payments to eligible professionals who are not meaningful users of Certified Electronic Health Record (EHR) Technology will be reduced. CMS had proposed further reductions in ASP-based reimbursement as part of its Medicare Part B drug demonstration project, but has since withdrawn the proposal.

ACA

At this time, it is not possible to predict the impact of the new U.S. administration’s proposed repeal of the ACA or propensity to apply changes in funding for key provisions or to determine what might replace the current legislation. The uncertainty in funding for health exchanges has led to significant rises in premiums, which may in turn reduce covered lives without there even being an official ACA repeal. Any regulatory or legislative changes to definitions of line extensions or calculations of Medicaid rebate calculations could also affect costs to Shire. In December 2017, President Trump signed tax reform legislation into law, which included removal of the so-called individual mandate, which required individuals to carry health insurance or pay a tax penalty. Official estimates indicate that this policy change will result in approximately 10 million Americans losing health insurance coverage. If the estimates come to fruition, this could have implications to patient access to the Company's products.

On February 1, 2016, CMS issued regulations implementing the Medicaid rebate provisions of the ACA (Final Rule). CMS’ interpretation of the rebates related to line extensions, and the Average Manufacturer Price (AMP) aspects of the Final Rule, could increase rebate costs. CMS’ 2020 proposed expansion of the Medicaid rebate program to U.S. Territories (including Puerto Rico, U.S. Virgin Islands, Guam, Northern Mariana Islands and Samoa) could also impact both the Company’s contracting strategies to some of these Territories and increase Shire’s Medicaid rebate and operational costs. CMS’ publication of its own pricing compendium, (NADAC), as well as AMP-based Federal Upper Limits (FUL) could affect reimbursement to pharmacists for drugs and the state’s ability to continue providing access to brands that have generic versions, depending on the rate of each state’s adoption.

Dual-eligibles

Individuals that qualify for both Medicare and Medicaid are deemed "dual-eligible." Dual-eligibles receive their retail pharmaceutical coverage under the Medicare Part D program. There are several initiatives aimed at requiring manufacturers to provide Medicaid level rebates under Medicare Part D for the low-income subsidy eligible, including the dual-eligible population.

The tax revenue aspects of the fiscal cliff in the Budget Control Act were not fully resolved via the Taxpayers Relief Act of 2012, and because of this and due to the budget climate in the U.S., government programs like Medicare, Medicaid and others could face additional spending cuts or changes which could affect government payer utilization or payment of Shire’s products.

Institute for Clinical and Economic Review (ICER)

In the U.S., ICER delivers recommendations based on its own analyses of clinical effectiveness and economic value. While ICER’s recommendations are non-binding, they can influence payer thinking around coverage and access criteria. ICER has decided to engage in a new study in the hemophilia therapeutic class that may or may not effect Shire’s drugs in this class.


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Outside of the U.S.

In the EU and certain other territories, price controls and Health Technology Assessments for new, highly priced medicines are expected. Uncertainty exists about the pricing and reimbursement status of newly approved products in the EU. Germany, for example, has implemented the Act for the Restructuring of the Pharmaceutical Market in Statutory Health Insurance. This law essentially maintains free pricing for new chemical entities for one year, but assesses the patient relative benefit of new drugs within six months of commercialization in order to inform subsequent price negotiations. Prices of drugs bringing added patient benefit will qualify for price negotiation, while those with no added benefit will be subject to reference pricing, where price is determined by taking the lowest and/or average price of similar medicines in Germany. Criteria required to prove a drug’s benefit in Germany include an improvement of health, reduction of illness duration, extension of survival, reduction of side effects or improvement of the quality of life. Third party reimbursement limits may reduce the demand for the Company’s products. The slow pace of the price applications process in some countries has delayed and, occasionally, prevented product launches. In some countries regional authorities are seeking to constrain drug prices and uptake. As such, the Company’s estimated product launches may be delayed. Furthermore, ADHD and behavioral drugs in the EU and other markets require strong education and promotion efforts in order to gain acceptance and an economically viable reimbursement profile.
 
Agreements with Baxter

Prior to their separation in July 2015, 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 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.

Separation and Distribution Agreement

Baxter and Baxalta entered into a separation and distribution agreement which sets forth the agreements between Baxter and Baxalta regarding the principal transactions required to effect Baxalta’s separation from Baxter and other agreements governing Baxalta’s relationship with Baxter. It also identified assets transferred, liabilities assumed and contracts assigned to each of Baxalta and Baxter as part of the separation, and provided for when and how these transfers, assumptions and assignments were to occur.

Transition Services Agreement

Baxter and Baxalta entered into a transition services agreement prior to the separation pursuant to which Baxalta and Baxter and their respective subsidiaries provided various services to each other on an interim, transitional basis. The services provided by Baxter include finance, information technology, human resources, quality, supply chain and certain other administrative services. The majority of the services previously provided under the transition services agreement have ended by December 31, 2017 with certain information technology related services extending into 2018.

Tax Matters Agreement

Baxter and Baxalta entered into a tax matters agreement prior to the distribution which generally governs their respective rights, responsibilities and obligations after the distribution with respect to taxes for any tax period ending on or before the separation date, as well as tax periods beginning before and ending after the separation. In addition, the tax matters agreement addresses the allocation of liability for taxes that were incurred as a result of restructuring activities undertaken to effectuate the distribution and provides for Baxalta to indemnify Baxter against any tax liabilities resulting from Baxalta’s action or inaction that causes the merger-related transactions to be taxable. For a description of the potential effect of the combination on the tax status of the separation and related transactions, see section titled “Risk Factors—Risks Related to the Combination with Baxalta Incorporated.”

Manufacturing and Supply Agreement

Baxalta entered into a manufacturing and supply agreement with Baxter prior to the separation pursuant to which Baxalta or Baxter, as the case may be, manufacture, label, and package products for the other party. Baxalta’s rights to such technology are limited by the terms of the Galaxy license agreement described herein, including with respect to the use of such technology and the physical location and ownership of any such equipment.

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Galaxy License Agreement

Baxalta entered into an intellectual property license agreement with Baxter, which is referred to as the Galaxy license agreement, pursuant to which Baxalta received a perpetual, non-transferrable, non-sublicenseable, royalty-free, fully paid, worldwide license to certain intellectual property known as the Galaxy technology in order to allow Baxalta to continue using such technology in its plasma-derived products. This license primarily provides Baxalta with the right to Galaxy trademarks, as well as know-how and trade secrets necessary to operate and maintain (but not to manufacture) equipment using the Galaxy technology.

Transitional Trademark License Agreement

Baxalta and Baxter entered into a transitional trademark license agreement pursuant to which each granted the other a non-exclusive, royalty-free and worldwide license to use certain of each other’s trademarks following the separation, with the license granted to Baxter limited to use by Baxter in its performance of its obligations under the separation transaction agreements. The license to Baxalta allows it to continue using certain of Baxter’s trademarks (including the Baxter name) in order to provide sufficient time for Baxalta to rebrand or phase out its use of the licensed marks.

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 acquisition, 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 acquisition, 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 acquisition (other than losses resulting from any disposition of Baxalta common stock by Baxter (i) that are not attributable to the acquisition 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 acquisition 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.

Responsibility
 
Corporate Responsibility (Responsibility) matters to Shire's business. Responsibility helps the Company have the greatest impact on the lives of patients, employees and local and global communities. It is a core value that has long been embedded across the Company and ensures accountability for social, economic and environmental impacts. This commitment to Responsibility is supported by Shire’s Board of Directors, championed by the Chief Executive Officer and driven forward by Shire’s senior leaders.

In 2017, Shire developed its new Responsibility strategy with commitments and long-term goals to be achieved by 2025 aimed at enhancing the Company’s Responsibility, ambition and performance. The strategy was created by the Company’s Responsibility Sponsor Network, comprised of senior leaders that play a fundamental role in reviewing and directing Shire’s Responsibility activities and policies to ensure the Company maintains high standards. The strategy was based on the findings of Shire’s Responsibility materiality assessment, conducted in 2016, that identified and prioritized key Responsibility issues of greatest significance to Shire and its key stakeholders (including patient groups, investors, suppliers, nongovernmental organizations and employees).

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Shire’s Responsibility strategy of nine commitments is aligned to three strategic Responsibility pillars: Supporting Patients, People and Culture and Sustainable Operations. The Responsibility strategy is focused on patients and those who care for them, and is explicitly linked to Shire’s strategic drivers, with ethics and integrity permeating throughout.

Employees
 
The Company’s employees are vital to its success. As of December 31, 2017, the Company had 23,044 employees.
 
Available information

The Company maintains a global internet site at www.shire.com. The Company makes available on its website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). Shire's reports filed with, or furnished to, the SEC are also available on the SEC's website at www.sec.gov in a document, and for Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, in an Extensible Business Reporting Language (XBRL) format. XBRL is an electronic coding language to create an interactive financial statement data over the internet. Any materials the Company files with the SEC can be found at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information can be obtained on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The information on the Company’s website is neither part of nor incorporated by reference in this Annual Report on Form 10-K.

ITEM 1A: Risk Factors

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 Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 the 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, insurers 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’s products, or competitive products, are genericized;
if the prices of the Company’s products are reduced or if prices of competitor products are reduced;
if launches of new products or launch of the Company’s products in new markets are not successful;
if there are unanticipated adverse events experienced with the Company’s products or those of a competitor not seen in clinical trials that impact physicians’ willingness to prescribe the Company’s products;
if issues arise from clinical trials being conducted for post-marketing purposes or for registration in another country which raise questions or concerns about a product;
if the regulatory agencies in one country act in a way that raises concerns for regulatory agencies or for prescribers or patients in another country;

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if there is a reduction in the use of the Company’s products by patients, payers or physicians due to the development of or preferences for alternative technologies or treatments;
if the Company’s products are subject to more stringent government regulation than competitor products;
if patent protection or other forms of exclusivity are lost or curtailed, or if competitors are able to successfully challenge or circumvent the Company’s patents or other forms of exclusivity (see ITEM 3: Legal Proceedings and Note 25, Legal and Other Proceedings, to the Consolidated Financial Statements set forth in this Annual Report on Form 10-K for details of current litigation);
if the sizes of the patient populations for the Company’s products are less than expected;
if there are lawsuits filed or government investigations initiated against Shire, including but not limited to, product liability claims, consumer law claims, payer or reimbursement litigation and prior sales or marketing practices; or
if there are adverse developments in investigations or government proceedings.

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 and other initiatives to regulate or influence prices and access to customers. Regulations in the U.S., the European Union and other jurisdictions mandating price controls or imposing constraints on patients’ ability to purchase Shire’s products significantly impact its business. In the U.S., the new administration has made public and social media statements regarding proposed changes to existing government initiatives, like the ACA, which has created significant uncertainty for the future of federal government policies that regulate or influence prices and access to customers. Any future changes in such laws, regulations, practices or policies may adversely affect the Company's financial condition and results of operations.

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 health care organizations, private health insurers, distributors and pharmacies 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:

higher levels of controls on the use of the Company’s products and/or requirements for further price concessions mandated or negotiated by managed health care organizations or government authorities;
legislative proposals to reform health care and government insurance programs in many of the Company’s markets; and
price controls, unsuccessful government tenders, or non-reimbursement of new medicines or new indications.

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.


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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 certain of Shire’s drug products, including, but not limited to, CINRYZE, ADVATE, ADYNOVATE, HYQVIA, ELAPRASE, FIRAZYR, REPLAGAL and GATTEX/REVESTIVE where the Company currently relies on a single active ingredient source for each. Shire also relies on limited third party sources to provide the donated plasma necessary for the manufacture of CINRYZE. In addition, 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 certain of its products, including, but not limited to, ADDERALL XR, CINRYZE, CUVITRU, FIRAZYR, LIALDA and PENTASA.

For many of those components and materials for which a sole supplier is used, the Company seeks to address potential supply disruption by, among other things, regularly evaluating such risk and, if appropriate, holding strategic inventory in the case of such potential supply disruptions.  If such efforts prove unsuccessful, it could have a material adverse effect on the Company’s revenues, financial condition or results of operations.

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 meet quality assurance measures and/or 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:

regulatory or enforcement actions that result in shut-downs, delays in or withdrawal of regulatory approvals necessary to carry on manufacturing activities, product recalls and penalties or fines resulting in unanticipated costs in production, whether imposed directly on the Company or imposed indirectly through one or more of its third-party suppliers;
the inability of the Company to increase its production capacity for certain drugs commensurate with market demand;
the possibility that the supply of incoming materials may be delayed or become unavailable and that the quality of incoming materials may be substandard and not detected;
the possibility that the Company may fail to maintain appropriate quality standards throughout its internal and third-party supply network, or to comply with current manufacturing best practices, rules or other applicable regulations;
disruptions to supply chain continuity as a result of natural or man-made disasters at the Company’s facilities or at one or more of its third-party suppliers’ facilities; and
failure to maintain the integrity of the Company’s supply chains against fraudulent and criminal acts, such as intentional product adulteration, diversion, theft, or counterfeiting activities.


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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 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 VYVANSE, ADDERALL XR and MYDAYIS, 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, CUVITRU 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 and other types of contamination. Additionally, some of the Company’s therapies, including CINRYZE, FEIBA, HYQVIA, CUVITRU and GAMMAGARD LIQUID are derived from human plasma, and are therefore subject to the risk of biological contamination inherent in plasma-derived 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.


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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 has completed construction of all buildings associated with the Covington facility and is going through a rigorous commissioning and testing process to receive licensing from the FDA and international regulatory agencies. 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:

preclinical or clinical tests may show the product to lack safety or efficacy;
delays may be caused by: slow enrollment in clinical studies; regulatory requirements for clinical trial drug supplies; extended length of time to achieve study endpoints; additional time requirements for data analysis or dossier preparation; time required for discussions with regulatory agencies, including regulatory agency requests for additional preclinical or clinical data; regulatory agencies due to staffing or resource limitations; analysis of or changes to study design; unexpected safety, efficacy, or manufacturing issues; shared control with collaborative partners in the planning and execution of the product development, scaling of the manufacturing process, or obtaining approval for manufacturing;
manufacturing issues, pricing or reimbursement issues, or other factors may render the product economically unviable;
the proprietary rights of others and their competing products and technologies may prevent the product from being developed or commercialized; or
submission of an application for regulatory approval of any of the Company’s product candidates may be subjected to lengthy review and ultimately rejected.

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 registration or entering late stage clinical development, including, but not limited to SHP643 for the treatment of HAE, which is in registration, SHP621 for the treatment of EOE, which is in Phase 3 clinical trials, and SHP647 for the treatment of ulcerative colitis, which is in Phase 3. 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.


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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 year ended December 31, 2017, 26% of the Company’s product sales were attributable to three customers: 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 also 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, refer to ITEM 3: Legal Proceedings and Note 25, Legal and Other Proceedings, to the Consolidated Financial Statements set forth in this Annual Report on Form 10-K.

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.


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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 in the United States, since 2014, generic versions of INTUNIV have been marketed in the United States and since the third quarter of 2017, generic versions of LIALDA and FOSRENOL have been marketed in the United States. As a result, product sales of ADDERALL XR, INTUNIV, LIALDA and FOSRENOL declined.

Factors which could cause further or more rapid declines in Shire’s product sales include:

the loss or earlier than expected expiration of intellectual property rights or regulatory exclusivity periods with respect to the Company’s branded products;
generic or authorized generic versions of these products capturing more of Shire’s branded market share than expected;
lower prices and the actual or perceived greater effectiveness or safety of generic drug products relative to Shire’s branded products;
the FDA approving additional ANDAs for these products or additional ANDAs for generic versions of these products which, if launched, would further reduce branded market share or impact the amount of Shire’s authorized generic product sales;
changes in reimbursement policies of third-party payers; or
changes to the level of sales deductions for branded Shire products for private or public payers.

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, refer to ITEM 3: Legal Proceedings and Note 25, Legal and Other Proceedings, to the Consolidated Financial Statements set forth in this Annual Report on Form 10-K.


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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 the 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 material ongoing intellectual property litigation, refer to ITEM 3: Legal Proceedings and Note 25, Legal and Other Proceedings, to the Consolidated Financial Statements set forth in this Annual Report on Form 10-K.

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, as well as internal reorganizations and transitions of our offices in Illinois, Pennsylvania, the United Kingdom and other locations, may increase the Company’s difficulty in recruiting and retaining employees.


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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 strategic 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:

a proposed acquisition may not be consummated due to the occurrence of an event, change or other circumstances that gives rise to the termination of the applicable agreement;
a governmental, regulatory, board, shareholder or other approval required for a proposed acquisition may not be obtained, or may be obtained subject to conditions that are not anticipated, or another condition to the closing of a proposed acquisition may not be satisfied, resulting in delays or ultimate failure of consummating a proposed acquisition;
shareholders may initiate legal action to prevent or delay consummation of a proposed acquisition or to seek judicial reevaluation of a proposed acquisition’s consideration;
a lengthy, uncertain process when pursuing a potential combination could disrupt relationships between Shire and a target company’s customers, suppliers and employees, distract Shire’s or a target company's management from operating its business, and could lead to additional and unanticipated costs;
a target company may be unable to retain and hire key personnel and/or maintain its relationships with customers, suppliers and other business partners pending the consummation of the proposed acquisition by Shire;
after the consummation of an acquisition, the Company may be unable to retain the acquired company’s key personnel, existing customers, suppliers and other business partners or attract new customers;
the businesses of an acquired company may be otherwise disrupted by the acquisition, including increased costs and diversion of its management’s time and resources;
failure to achieve the targeted growth and expected benefits of the acquisition if sales of an acquired company’s products are lower than anticipated, or these products cannot be successfully commercialized or cannot obtain necessary regulatory approvals;
any integration of an acquired company into Shire could be complex and time-consuming, and difficulties in effectuating these integrations may lead to the combined companies not being able to realize the expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits in the timeframe anticipated, or at all;
failure to successfully obtain regulatory approval of an acquired company’s late stage pipeline assets in a timely manner or at all, or to successfully commercialize such products after regulatory approval has been obtained;
undiscovered or unanticipated risks and liabilities, including legal and compliance related liabilities, may emerge in connection with an acquisition, or may be higher than anticipated; and
even after successfully completing an acquisition and integrating the acquired company’s businesses into Shire, the anticipated benefits of the combinations, including expected synergies, may ultimately prove less than anticipated.


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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 36% of its total revenue in 2017) 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, refer to PART 2: ITEM 7A: Quantitative and Qualitative Disclosures about Market Risk set forth in this Annual Report on Form 10-K.


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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, including by the EU.

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. The Company does not carry product liability insurance for its products due to the Company’s analysis of the risk, frequency and severity of a loss and the cost of insurance for the risk. Accordingly, if 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. 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. In addition, failure to effectively identify, aggregate, analyze, report, and protect adverse event data, and/or fully comply with relevant laws, rules, and regulations around adverse event reporting could jeopardize patient safety and expose the Company to penalties, fines, and systemic reputational damage.

It is crucial that Shire report any adverse events to keep customers and patients informed and safe. Specifically, in regards to the various patient support programs, Shire risks noncompliance in safety-reporting and/or reporting of incomplete safety information if adverse events are not documented as part of the patient support programs.

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 stored 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.


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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.

Our ongoing strategic review of our Neuroscience franchise may distract management and employees and may not lead to improved operating performance or financial results; there can be no guarantee that, once completed, our strategic review will result in any additional strategic changes beyond those that have already been announced.

In August 2017, Shire announced that it was conducting a strategic review of its Neuroscience business. On January 8, 2018, following the first stage of this review, Shire announced that its Board has concluded that the Neuroscience business warrants additional focus and investment and that there is a strong business rationale for creating two distinct business divisions within Shire: a Rare Disease division and a Neuroscience division. Shire expects to report the operational performance metrics of each division separately beginning with the first quarter of 2018. The second stage of the review will include continuing to evaluate all strategic alternatives, including the merits of an independent listing for each of the two divisions.


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During the course of our strategic review, our management and employees may be distracted, which could impact our business. Further, we may incur additional costs in undertaking the strategic review or executing any conclusion reached as a result of the review. Moreover, operating our business as distinct divisions may not lead to improved operating performance or financial results for one or both businesses or meet the expectations that we have communicated for those businesses or the Company as a whole. Finally, there can be no guarantee that, once completed, our strategic review will result in any additional strategic changes beyond those that have already been announced.

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:

integrating personnel, operations and systems, while maintaining focus on selling and promoting existing and newly acquired or produced products;
coordinating geographically dispersed organizations;
distraction of management and employees from operations;
changes or conflicts in corporate culture;
management’s inability to manage a substantial increase in the number of employees;
management’s inability to train and integrate personnel, who may have limited experience with the respective companies’ business lines and products, and to deliver a consistent message regarding diseases treated by the Company;
retaining existing customers and attracting new customers;
retaining existing employees and attracting new employees;
maintaining business relationships; and
inefficiencies associated with the integration and management of the operations of the two companies.

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 American Depository Shares (ADSs).

Shire has incurred significant additional indebtedness in connection with the acquisition, which has decreased the Company’s business flexibility and increased its interest expense. All of the Company’s debt obligations have priority over the Company’s ordinary shares and ADSs with respect to payment in the event of a liquidation, dissolution or winding up

As of December 31, 2017, Shire had gross debt of approximately $19.6 billion comprising $12.1 billion of SAIIDAC Notes issued in September 2016, $5.0 billion of Baxalta Notes assumed with the acquisition of Baxalta, $1.2 billion outstanding borrowing under the term loan facility and $810.0 million outstanding borrowing under the $2.1 billion Revolving Credit Facility and certain capital lease and other debt obligations. For further information, refer to Note 17, Borrowings and Capital Leases, to these Consolidated Financial Statements.

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. The Company is required to abide by certain covenants within the various financing arrangements, which if not adhered to, would require immediate repayment of the indebtedness.


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Moreover, the Company may be required to raise additional financing. 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. 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, 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 Shire 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 may not be able to meet its financial reporting requirements and/or 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.


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The acquisition of 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 (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 (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 Annual Report on Form 10-K, 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.


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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 1A under the caption entitled “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” and ITEM 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations-Agreements with Baxter set forth in this Annual Report on Form 10-K.

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 as revised on October 13, 2016 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.


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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.

ITEM 1B: Unresolved Staff Comments
 
None.

ITEM 2: Properties
 
The following is a summary of the Company's principal properties as of December 31, 2017:
Location
 
Use
 
Approximate square footage
 
Owned or leased
Orth an der Donau, Austria
 
Manufacturing and office
 
3,331,000

 
Owned
Vienna, Austria
 
Manufacturing, distribution, warehouse, plasma center and office
 
1,645,000

 
Owned and leased
Lexington, Massachusetts, U.S.
 
Manufacturing, lab and office
 
1,342,000

 
Owned and leased
Covington, Georgia, U.S.
 
Manufacturing and office
 
1,106,000

 
Leased
Cambridge, Massachusetts, U.S.
 
Manufacturing, lab and office
 
956,000

 
Leased
Los Angeles, California, U.S.
 
Manufacturing facility
 
448,000

 
Owned
Thousand Oaks, California, U.S.
 
Manufacturing, warehouse and office
 
280,000

 
Owned
Westlake Village, California, U.S.
 
Office
 
232,000

 
Leased
Rieti, Italy
 
Manufacturing and office
 
215,000

 
Owned
Lessines, Belgium
 
Manufacturing facility
 
202,000

 
Leased
Bannockburn, Illinois, U.S.
 
Office
 
172,000

 
Leased
Woodlands, Singapore
 
Manufacturing and office
 
164,000

 
Leased
Exton, Pennsylvania, U.S.
 
Office
 
151,000

 
Leased
Neuchatel, Switzerland
 
Manufacturing and office
 
140,000

 
Owned
Greenville, South Carolina, U.S.
 
Plasma center
 
148,000

 
Owned
Van Nuys, California, U.S.
 
Distribution center
 
117,000

 
Leased
Dublin, Ireland
 
Office
 
101,000

 
Leased
Zug, Switzerland
 
Office
 
97,000

 
Leased
Florence, Kentucky, U.S.
 
Warehouse and distribution facility
 
96,000

 
Leased
North Reading, Massachusetts, U.S.
 
Warehouse
 
92,000

 
Leased
Round Lake, Illinois, U.S.
 
Manufacturing, lab and office
 
87,000

 
Leased
Chicago, Illinois, U.S.
 
Office
 
83,000

 
Leased
Burlington, Massachusetts, U.S.
 
Lab and office
 
65,000

 
Leased
Sao Paulo, Brazil
 
Lab, warehouse and office
 
52,000

 
Leased
 
The Company owns or leases premises in a number of other locations around the world.

ITEM 3: Legal Proceedings
 
The information required by this Item is incorporated herein by reference to Note 25, Legal and Other Proceedings, to the Consolidated Financial Statements set forth in this Annual Report on Form 10-K.

ITEM 4: Mine Safety Disclosures
 
Not applicable.


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PART II

ITEM 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Ordinary Shares

The Company’s ordinary shares are listed on the London Stock Exchange (LSE).

The following table presents the high and low closing mid-market quotation per ordinary share of Shire as quoted in the Daily Official List of the LSE for the periods indicated.
 
High £ per
ordinary share
 
Low £ per
ordinary share
Year ended December 31, 2017
 
 
 
1st Quarter
50.36
 
43.20
2nd Quarter
48.52
 
42.38
3rd Quarter
43.51
 
36.13
4th Quarter
39.21
 
34.99
 
 
 
 
Year ended December 31, 2016
 
 
 
1st Quarter
45.30
 
34.80
2nd Quarter
46.41
 
39.56
3rd Quarter
53.15
 
46.72
4th Quarter
53.23
 
43.15

The total number of registered holders of ordinary shares of Shire on February 12, 2018 was 5,265. Since certain of the ordinary shares are held by broker nominees, the number of registered holders is not representative of the number of beneficial owners.

American Depositary Shares

American Depositary Shares each represent three ordinary shares of Shire. An ADS is evidenced by an American Depositary Receipt (ADR) issued by Citibank, N.A. as depositary, and is listed on the NASDAQ Global Select Market. On February 12, 2018, the proportion of ordinary shares represented by ADRs was 22.90% of the outstanding ordinary shares.

The following table presents the high and low market quotations for ADSs quoted on the NASDAQ Global Select Market for the periods indicated.
 
High $
per ADS
 
Low $
per ADS
Year ended December 31, 2017
 
 
 
1st Quarter
186.30
 
161.71
2nd Quarter
190.00
 
162.35
3rd Quarter
169.80
 
140.85
4th Quarter
157.65
 
138.24
 
 
 
 
Year ended December 31, 2016
 
 
 
1st Quarter
199.35
 
150.40
2nd Quarter
192.14
 
164.64
3rd Quarter
206.56
 
185.20
4th Quarter
197.70
 
163.77


60


The number of registered holders of ADSs on February 12, 2018 was 21,652. Since certain of the ADSs are held by broker nominees, the number of registered holders is not representative of the number of beneficial owners.

Dividend policy

A first interim dividend for the six months to June 30, 2017 of $0.0509 (£0.0385) per ordinary share, equivalent to $0.1527 per ADS, was paid in October 2017. A second interim dividend for the six months to December 31, 2017 of $0.2979 (£0.2146) per ordinary share equivalent to $0.8937 per ADS will be paid in April 2018.

A first interim dividend for the six months to June 30, 2016 of $0.0463 (£0.0351) per ordinary share, equivalent to $0.1389 per ADS, was paid in October 2016. A second interim dividend for the six months to December 31, 2016 of $0.2570 (£0.2064) per ordinary share equivalent to $0.7710 per ADS was paid in April 2017.

This is consistent with Shire’s stated policy of paying a dividend semi-annually, set in U.S. cents per ordinary share. Typically, the first interim payment each year will be higher than the previous year’s first interim dividend. Dividend growth for the full year will be reviewed by the Board when the second interim dividend is determined. There is no guarantee that dividends will be declared for any periods.

Distributable Reserves

The payment of dividends by Shire plc is governed by Jersey law. Under Jersey law, Shire plc is entitled to fund payments of dividends from any source (other than a capital redemption reserve or nominal capital account). Prior to making any dividend payment, the Directors of Shire plc who authorize the payment of the dividend must make a solvency statement to the effect that Shire plc will be able to continue to carry on its business and discharge its liabilities as they fall due immediately after the payment is made and for the twelve month period following the making of the payment. Shire's future dividend policy will be dependent upon the amount of its net assets, its financial condition, the terms of its then-existing debt facilities and other relevant factors existing at the time.

For dividends paid by Shire Biopharmaceuticals Holdings (Old Shire) on the income access share to the Trustee, the ability of Old Shire to pay dividends is determined under English law. As a matter of English law, Old Shire can only pay dividends out of its distributable profits, which are the accumulated realized profits of Old Shire and not the consolidated group, so far as not previously utilized by distribution or capitalization, less accumulated realized losses, so far as not previously written off in a reduction or reorganization of capital.

Income Access Share Arrangements

Pursuant to the Scheme of Arrangement (Scheme) that became effective on May 23, 2008 Shire plc became the holding company of the former holding company of the Shire group, Old Shire. As a result of the Scheme, Shire has put in place income access share arrangements which enable Shire ordinary shareholders, other than Shire ADS holders, to choose whether they receive their dividends from Shire plc, a company tax resident in the Republic of Ireland, or from Old Shire, a Shire group company tax resident in the UK.

Old Shire has issued one income access share to the Income Access Trust (IAS Trust) which is held by the trustee of the IAS Trust (Trustee). The mechanics of the arrangements are as follows:

i)
If a dividend is announced or declared by Shire plc on its ordinary shares, an amount is paid by Old Shire by way of a dividend on the income access share to the Trustee, and such amount is paid by the Trustee to ordinary shareholders who have elected to receive dividends under these arrangements. The dividend which would otherwise be payable by Shire plc to its ordinary shareholders will be reduced by an amount equal to the amount paid to its ordinary shareholders by the Trustee.
ii)
If the dividend paid on the income access share and on-paid by the Trustee to ordinary shareholders is less than the total amount of the dividend announced or declared by Shire plc on its ordinary shares, Shire plc will be obliged to pay a dividend on the relevant ordinary shares equivalent to the amount of the shortfall. In such a case, any dividend paid on the ordinary shares will generally be subject to Irish withholding tax at the rate of 20% or such other rate as may be applicable under exemptions from withholding tax contained in Irish law.
iii)
An ordinary shareholder is entitled to make an income access share election such that he or she will receive his or her dividends (which would otherwise be payable by Shire plc) under these arrangements from Old Shire. This can be done by submitting an income access share arrangements election form containing information on the participating shareholders as required by applicable law and regulation.

61



The ADS Depositary has made an election on behalf of all holders of ADSs such that they will receive dividends from Old Shire under the income access share arrangements. Dividends paid by Old Shire under the income access share arrangements will not, under current legislation, be subject to any UK or Irish withholding taxes. If a holder of ADSs does not wish to receive dividends from Old Shire under the income access share arrangements, he or she must withdraw his or her ordinary shares from the ADS program prior to the dividend record date set by the ADS Depositary and request delivery of the Shire plc ordinary shares. This will enable him or her to receive dividends from Shire plc.

It is the expectation, although there can be no certainty, that Old Shire will distribute dividends on the income access share to the Trustee for the benefit of all ordinary shareholders who make an income access share arrangements election in an amount equal to what would have been such ordinary shareholders’ entitlement to dividends from Shire plc in the absence of the income access share arrangements election. If any dividend paid on the income access share and on-paid to the ordinary shareholders is less than such ordinary shareholders’ entitlement to dividends from Shire plc in the absence of the income access share arrangements election, the dividend on the income access share will be allocated pro rata among the ordinary shareholders and Shire plc will pay the balance to these ordinary shareholders by way of dividend. In such circumstances, there will be no grossing up by Shire plc in respect of, and Old Shire and Shire plc will not compensate those ordinary shareholders for, any adverse consequences including any Irish withholding tax consequences.

Shire is able to suspend or terminate these arrangements at any time, in which case the full Shire plc dividend will be paid directly by Shire plc to those ordinary shareholders (including the ADS Depositary) who have made an income access share arrangements election. In such circumstances, there will be no grossing up by Shire plc in respect of, and Old Shire and Shire plc will not compensate those ordinary shareholders for, any adverse consequences including any Irish withholding tax consequences.

During the year ended December 31, 2017, Old Shire paid dividends totaling $245.6 million (2016: $150.6 million; 2015: $127.7 million) on the income access share to the Trustee in an amount equal to the dividend ordinary shareholders would have received from Shire plc.

Equity Compensation Plan Information

Equity compensation plan information is incorporated herein by reference to ITEM 12: Security Ownership of Certain Beneficial Owners and Management and Related Stock Holder Matters in this Annual Report on Form 10-K.
 
ITEM 6: Selected Financial Data
 
The selected consolidated financial data presented below as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 were derived from the audited Consolidated Financial Statements of the Company, included herein.
 
The selected consolidated financial data presented below as of December 31, 2015, 2014 and 2013 and for the years ended December 31, 2014 and 2013 were derived from the audited Consolidated Financial Statements of the Company, which are not included herein. The selected financial data related to the Statements of Operations for the year ended December 31, 2013 has been represented to reflect the reclassification of the Amortization of acquired intangible assets as a separate line item from Other operating expenses.
 
The selected consolidated financial data should be read in conjunction with ITEM 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and with ITEM 15: Exhibits and Financial Statement Schedules in this Annual Report on Form 10-K.
 

62


 
For the years ended December 31,
(In millions)
2017
 
2016
 
2015
 
2014
 
2013
Statements of Operations:
 

 
 

 
 

 
 

 
 

Total revenues
$
15,160.6

 
$
11,396.6

 
$
6,416.7

 
$
6,022.1

 
$
4,934.3

Amortization of acquired intangible assets
(1,768.4
)
 
(1,173.4
)
 
(498.7
)
 
(243.8
)
 
(152.0
)
Other operating expenses
(10,937.0
)
 
(9,260.3
)
 
(4,498.5
)
 
(4,080.3
)
 
(3,048.8
)
Operating income from continuing operations
2,455.2

 
962.9

 
1,419.5

 
1,698.0

 
1,733.5

Other (expense)/income, net
(561.8
)
 
(476.8
)
 
(33.7
)
 
2.8

 
(39.9
)
Receipt of break fee

 

 

 
1,635.4

 

Income from continuing operations before income taxes and equity in earnings/(losses) of equity method investees
1,893.4

 
486.1

 
1,385.8

 
3,336.2

 
1,693.6

Income taxes
2,357.6

 
126.1

 
(46.1
)
 
(56.1
)
 
(277.9
)
Equity in earnings/(losses) of equity method investees, net of taxes
2.5

 
(8.7
)
 
(2.2
)
 
2.7

 
3.9

Income from continuing operations, net of taxes
4,253.5

 
603.5

 
1,337.5

 
3,282.8

 
1,419.6

Gain/(loss) from discontinued operations, net of taxes
18.0

 
(276.1
)
 
(34.1
)
 
122.7

 
(754.5
)
Net income
$
4,271.5

 
$
327.4

 
$
1,303.4

 
$
3,405.5

 
$
665.1

Earnings per Ordinary Share - basic
 

 
 

 
 

 
 

 
 

Earnings from continuing operations  
$
4.69

 
$
0.78

 
$
2.27

 
$
5.60

 
$
2.57

Earnings/(loss) from discontinued operations
0.02

 
(0.35
)
 
(0.06
)
 
0.21

 
(1.37
)
Earnings per Ordinary Share – basic
$
4.71

 
$
0.43

 
$
2.21

 
$
5.81

 
$
1.20

Earnings per Ordinary Share - diluted
 

 
 

 
 

 
 

 
 

Earnings from continuing operations  
$
4.66

 
$
0.77

 
$
2.26

 
$
5.55

 
$
2.45

Earnings/(loss) from discontinued operations
0.02

 
(0.35
)
 
(0.06
)
 
0.21

 
(1.28
)
Earnings per Ordinary Share – diluted
$
4.68

 
$
0.42

 
$
2.20

 
$
5.76

 
$
1.17


Weighted average number of shares:
 
 
 
 
 
 
 
 
 
(In millions)
2017
 
2016
 
2015
 
2014
 
2013
Basic
906.5

 
770.1

 
590.4

 
586.7

 
552.0

Diluted
912.0

 
776.2

 
593.1

 
591.3

 
590.3

Cash dividends declared and paid per Ordinary Share
$
0.31

 
$
0.27

 
$
0.23

 
$
0.21

 
$
0.18

 
(In millions)
 For the years ended December 31,
Balance sheets:
2017
 
2016
 
2015
 
2014
 
2013
Total current assets
$
7,608.4

 
$
7,539.5

 
$
2,255.5

 
$
5,183.1

 
$
4,288.3

Total assets
67,756.9

 
67,035.4

 
16,609.8

 
13,632.1

 
8,323.0

Total current liabilities
7,882.0

 
7,743.3

 
3,706.1

 
3,021.9

 
1,807.9

Long term obligations
18,950.3

 
22,021.4

 
868.7

 
736.7

 
588.5

Total liabilities
31,580.5

 
38,087.4

 
6,780.7

 
4,969.2

 
2,957.0

Total equity
36,176.4

 
28,948.0

 
9,829.1

 
8,662.9

 
5,366.0


The following significant items are included within other operating expenses:
Up-front and milestone payments for in-licensed development projects, expensed to R&D, of $141.1 million, $123.7 million, $nil, $12.5 million and $nil in the years ended December 31, 2017, 2016, 2015, 2014 and 2013, respectively.

63


Expense related to the unwind of inventory fair value adjustments of $747.8 million, $1,118.0 million, $31.1 million, $91.1 million and $nil for the years ended December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
Impairment loss related to IPR&D intangible assets of $20.0 million, $8.9 million, $643.7 million and $190.3 million for the years ended December 31, 2017, 2016, 2015 and 2014, respectively.
Impairment loss of $7.1 million related to the goodwill allocated to the Company’s former Regenerative Medicine reporting unit and Impairment loss of $19.9 million related to RESOLOR for the year ended December 31, 2013.
Reorganization costs, relating to employee involuntary termination benefits and other costs, of $47.9 million, $121.4 million, $97.9 million, $180.9 million and $88.2 million, for the years ended December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
Integration and acquisition costs of $894.5 million and $883.9 million for the years ended December 31, 2017, and 2016, respectively, primarily related to Baxalta and Dyax transactions.
For the year ended December 31, 2015, Integration and acquisition costs include $39.8 million relating to the acquisition of NPS Pharma, Viropharma and Dyax, and $189.7 million relating to the acquisition of Baxalta, offset by a net credit relating to the change in the fair value of contingent consideration liabilities ($149.9 million).
For the year ended December 31, 2014, Integration and acquisition costs of $158.8 million, primarily related to the ViroPharma change in fair values of contingent consideration liabilities.
For the year ended December 31, 2013, a net credit to Integration and acquisition costs of $134.1 million, primarily related to a reduction in the fair value of contingent consideration liabilities.

On October 21, 2014, Shire received a break fee from AbbVie pursuant to the termination terms in the cooperation agreement. The payment of $1,635.4 million was received in cash.

Long term deferred tax liabilities are not included in the long term obligations balance.

As of December 31, 2017, long term obligations include $12,050.2 million, net of deferred financing costs and discounts, of SAIIDAC Notes and $4,308.9 million, net of deferred financing costs and discounts, of Baxalta Notes. Refer to Note 17, Borrowings and Capital Leases, to these Consolidated Financial Statements.

For the year ended 2017, the Company's income tax rate was impacted by the Tax Cuts and Jobs Act (Tax Act). The Tax Act resulted in a reduction to the federal U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. As a result of the reduction in the U.S. corporate income tax rate, the Company revalued its net deferred tax positions for the year ending December 31, 2017. This resulted in a decrease to the net deferred tax liability of approximately $2.5 billion, which was recorded as a reduction to income tax expense for the fourth quarter of 2017.

ITEM 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion should be read in conjunction with the Company’s Consolidated Financial Statements contained in ITEM 15: Exhibits and Financial Statement Schedules set forth in this Annual Report on Form 10-K.
 
Overview
 
The Company has grown both organically and through acquisition, completing a series of major transactions that have brought therapeutic, geographic and pipeline growth and diversification. The Company will continue to conduct its own research and development, focused on rare diseases and specialized conditions, as well as evaluate companies, products and pipeline opportunities that offer a strategic fit and have the potential to deliver value to all of the Company’s stakeholders: patients, physicians, policy makers, payers, partners, investors and employees.
 
The Company’s purpose is to enable people with life altering conditions to lead better lives. The Company will execute on its purpose through its strategy and business model. For further details of Shire’s strategy and business model, refer to ITEM 1: Business of this Annual Report on this Form 10-K.
 
Through deep understanding of patients’ needs, the Company is able to:

serve patients with high unmet needs in specialty therapeutic areas;
drive optimum performance of its marketed products - to serve patients today; and
build its pipeline of innovative specialist treatments through both R&D and Corporate Development activities to enable the Company to serve patients in the future.

64



Shire’s in-licensing and acquisition efforts are focused on products in specialist markets with strong intellectual property protection or other forms of market exclusivity and global rights. Shire believes that a carefully selected and balanced portfolio of products with strategically aligned and relatively small-scale sales forces will deliver strong results.
 
Company revenues, expenditures and net assets are attributable to the R&D, manufacture, sale and distribution of pharmaceutical products within one reportable segment. The Company also earns royalties and other revenues (where Shire has out-licensed products to third parties) that are recorded as royalty and other revenues.
 
Revenues are derived primarily from two sources - sales of the Company’s own products and royalties and other revenues:

95.3% (2016: 95.5%) of total revenues are derived from Product sales; and
4.7% (2016: 4.5%) of total revenues are derived from royalties and other revenues, including upfront payments from out-license arrangements.

The markets where the Company conducts its business are intensely competitive and highly regulated.
 
The health-care industry is also experiencing:

pressure from governments and healthcare providers to keep prices low while increasing access to drugs;
increased discounts, which reduce revenue, due to the population of “baby boomers” covered under Medicare, specifically those beneficiaries receiving drug cost offset through the Medicare Part D Coverage Gap;
increasing challenges from third party payers for products to have demonstrable clinical benefit, with pricing and reimbursement approval becoming increasingly linked to a product’s clinical effectiveness and impact on overall costs of patient care;
increased R&D costs, because development programs are typically larger and take longer to get approval from regulators;
challenges to existing patents from generic manufacturers;
governments and healthcare systems favoring earlier entry of low cost generic drugs; and
higher marketing costs, due to increased competition for market share.
 
Shire’s strategy has been developed to address these industry-wide competitive pressures. This strategy has resulted in a series of initiatives in the following areas:
 
Markets
 
Shire’s current portfolio of approved products spans seven key therapeutic areas (TA): Immunology, Hematology, Neuroscience, Internal Medicine, Genetic Diseases, Oncology and Ophthalmics. In 2017, the contribution of each TA to overall Product sales was as follows:
(In millions, except %)
Product sales
 
Percentage
Immunology
$
4,370.3

 
30.2
%
Hematology
3,785.6

 
26.2
%
Neuroscience
2,664.1

 
18.4
%
Internal Medicine
1,670.3

 
11.6
%
Genetic Diseases
1,437.7

 
10.0
%
Oncology
261.7

 
1.8
%
Ophthalmics
259.2

 
1.8
%
 
$
14,448.9

 
100.0
%

Shire has grown in part through acquisition which has brought therapeutic, geographic and pipeline growth and diversification.

The acquisition of Baxalta in June 2016 added the Hematology, Immunology and Oncology franchises and enabled Shire to become the global leader in rare diseases and highly specialized conditions.

65



The acquisition of Dyax in January 2016, with its lead pipeline product, SHP643, and marketed product KALBITOR, expanded and extended Shire’s industry-leading HAE portfolio (FIRAZYR and CINRYZE).

In July 2016, Shire licensed the global rights to all indications for SHP647 from Pfizer Inc. SHP647 is an investigational biologic being evaluated for the treatment of moderate-to-severe inflammatory bowel disease.

In 2015, Shire acquired NPS Pharma, Meritage Pharma, Inc. (Meritage Pharma) and Foresight Biotherapeutics Inc. (Foresight).

The acquisition of NPS Pharma added global rights to an innovative product portfolio with multiple growth catalysts, including GATTEX/REVESTIVE and NATPARA/NATPAR. The acquisition of Meritage Pharma provided global rights to SHP621, a Phase 3 ready asset for the treatment of adolescents and adults with EoE, a rare, chronic inflammatory GI disease. This builds upon the Company’s rare disease and GI commercial infrastructure and expertise. With the acquisition of Foresight, Shire acquired the global rights to SHP640 (topical ophthalmic drops combining 0.6% povidone iodine (PVP-I) and 0.1% dexamethasone), a therapy in late-stage development for the treatment of infectious conjunctivitis, an ocular surface condition commonly referred to as pink eye. This acquisition has a clear strategic fit with XIIDRA, which is approved in the U.S. for the treatment of the signs and symptoms of dry eye disease, and further demonstrates Shire’s commitment to building a leadership position in ophthalmics.

In 2017, Shire derived 34% (2016: 32%) of Product sales from outside of the U.S. Shire has ongoing commercialization and late-stage development activities, which are expected to further supplement the diversification of revenues in the future, including the following:

the launch of MYDAYIS in the U.S.;
continued launch of INTUNIV, REVESTIVE and ONIVYDE across Europe;
the approvals of NATPAR and ADYNOVI in the EU;
submission of SHP643 in the U.S.;
submission of CALPEG NDA for ALL in the U.S.;
submission of VONVENDI MAA in Europe; and
geographic expansion of XIIDRA with the recent approval in Canada and submissions in other key markets.
 
R&D
 
Shire's R&D efforts are focused on core therapeutic areas including Immunology, Hematology, Neuroscience, Internal Medicine, Genetic Diseases, Oncology and Ophthalmics. Shire concentrates its resources on obtaining regulatory approval for later stage pipeline products within these therapeutic areas and focuses its early stage research activities in rare diseases.
 
Evidence of the successful progression of the late stage pipeline can be seen in the granting of approval and associated launches of the Company’s products over the last three years. In this time, several products have received regulatory approval including: in the U.S., MYDAYIS in 2017, XIIDRA and CUVITRU in 2016, NATPARA and VYVANSE for BED in 2015; in the EU, ONIVYDE and CUVITRU in 2016, ELVANSE/TYVENSE for adults, INTUNIV for children and adolescents in 2015.
 
Shire’s management reviews direct costs for all R&D projects by development phase.
 
Shire’s R&D expenses in 2017 and 2016 include costs on programs in all stages of development. The following table summarizes the Company’s direct R&D spend categorized by development stage, based upon the development stage of each program for the years ended December 31, 2017 and 2016:

66


 
For the years ended December 31,
(In millions)
2017
 
2016
Early stage programs
$
275.3

 
$
325.7

Late stage programs
507.5

 
291.1

Currently marketed products
275.0

 
238.1

Total
$
1,057.8

 
$
854.9


Early stage programs also include pre-clinical and research programs. In addition to the above, the Company recorded R&D employee costs of $506.9 million in 2017 (2016: $431.9 million) and other indirect R&D costs of $198.6 million (2016: $153.0 million), comprising mainly of depreciation and up-front and milestone payments for in-licensed development projects.
 
For a discussion of the Company’s current development projects see ITEM 1: Business.
 
Patents and Market Exclusivity
 
The loss or expiration of patent protection or regulatory exclusivity with respect to any of the Company’s major products could have a material adverse effect on the Company’s revenues, financial condition and results of operations, as generic or biosimilar products may enter the market. Companies selling generic products often do not need to complete extensive clinical studies when they seek registration of a generic or biosimilar product and accordingly, are generally able to sell a generic version of the Company’s products at a much lower price.

In 2017, a generic version of the Company’s LIALDA product was launched, which led to lower sales of Shire’s LIALDA product compared to the period before loss of exclusivity. In 2017, a generic version of the Company’s FOSRENOL product was launched, which led to lower sales of FOSRENOL compared to the period before loss of exclusivity.

Shire is engaged in various legal proceedings with generic manufacturers. For information regarding current patent litigation, refer to Note 25, Legal and Other Proceedings, to the Consolidated Financial Statements set forth in this Annual Report on Form 10-K.
 
Corporate Development
 
Shire focuses its corporate development activity on the acquisition and in-licensing of businesses, products or compounds that offer a strategic fit and have the potential to deliver demonstrable value to all of the Company’s stakeholders.
 
Results of operations for the years ended December 31, 2017 and 2016
 
Financial highlights for the year ended December 31, 2017 are as follows:

Revenues

Product sales increased 33% to $14,448.9 million (2016: $10,885.8 million), primarily driven by the inclusion of a full year of legacy Baxalta product sales, with strong sales from immunoglobulin therapies and bio therapeutics.


Royalties and other revenues increased 39% to $711.7 million (2016: $510.8 million), primarily due to the receipt of an upfront license fee and a full year of contract manufacturing revenue acquired with Baxalta.

Operating results

Operating income increased 155% to $2,455.2 million (2016: $962.9 million), primarily due to the inclusion of a full year of legacy Baxalta operating income and lower expense related to the unwind of inventory fair value adjustments, partially offset by higher amortization of acquired intangible assets.


67


Earnings per share (EPS)

Diluted earnings per American Depositary Share (ADS) increased to $14.05 (2016: $1.27). The increase is primarily due to a tax benefit in 2017 driven by U.S. tax reform, higher operating income, combined with lower discontinued operations losses related to the divested DERMAGRAFT business.

Cash flows

Net cash provided by operating activities increased 60% to $4,256.7 million (2016: $2,658.9 million), primarily due to the inclusion of a full year of legacy Baxalta operating cash flows and strong cash receipts from higher legacy Shire sales and operating profitability, partially offset by a payment associated with the settlement of the DERMAGRAFT litigation and higher interest payments. Also, 2016 net cash provided by operating activities was negatively impacted by a payment associated with the termination of a biosimilar collaboration acquired with Baxalta.


68


Total revenues
 
The following table provides an analysis of the Company’s total revenues by source. In 2017, Immunology includes HAE from Genetic Diseases; prior year amounts have been reclassified to conform with the current year presentation.
 
 
Years ended December 31,
 
Product sales growth
(In millions)
2017
 
2016
 
%
Product sales by franchise
 
 
 
 
 
IMMUNOGLOBULIN THERAPIES
$
2,236.6

 
$
1,143.9

 
N/M

HEREDITARY ANGIOEDEMA
1,429.6

 
1,310.9

 
9
 %
BIO THERAPEUTICS
704.1

 
372.2

 
N/M

Immunology
4,370.3

 
2,827.0

 
N/M

HEMOPHILIA
2,957.3

 
1,789.0

 
N/M

INHIBITOR THERAPIES
828.3

 
451.8

 
N/M

Hematology
3,785.6

 
2,240.8

 
N/M

VYVANSE
2,161.1

 
2,013.9

 
7
 %
ADDERALL XR
348.0

 
363.8

 
(4
)%
MYDAYIS
21.6

 

 
N/M

Other Neuroscience
133.4

 
112.8

 
18
 %
Neuroscience
2,664.1

 
2,490.5

 
7
 %
LIALDA/MEZAVANT
569.4

 
792.1

 
(28
)%
GATTEX/REVESTIVE
335.5

 
219.4

 
53
 %
PENTASA
313.2

 
309.4

 
1
 %
NATPARA/NATPAR
147.4

 
85.3

 
73
 %
Other Internal Medicine
304.8

 
349.3

 
(13
)%
Internal Medicine
1,670.3

 
1,755.5

 
(5
)%
ELAPRASE
615.7

 
589.0

 
5
 %
REPLAGAL
472.1

 
452.4

 
4
 %
VPRIV
349.9

 
345.7

 
1
 %
Genetic Diseases
1,437.7

 
1,387.1

 
4
 %
Oncology
261.7

 
130.5

 
N/M

Ophthalmics
259.2

 
54.4

 
N/M

Total Product sales
14,448.9

 
10,885.8

 
33
 %
Royalties and other revenues
 
 
 
 
 
Royalties
448.4

 
382.6

 
17
 %
Other revenues
263.3

 
128.2

 
105
 %
Total royalties and other revenues
711.7

 
510.8

 
39
 %
Total revenues
$
15,160.6

 
$
11,396.6

 
33
 %
N/M: Consolidated results include Baxalta sales as of June 3, 2016, the date of acquisition, or partial year product launches; therefore, Product sales growth as a percentage is not meaningful.

Immunology

Immunology product sales, which now include HAE product sales, were $4,370.3 million in 2017 compared to $2,827.0 million in 2016, primarily driven by the inclusion of a full year of immunoglobulin therapies and bio therapeutics product sales following the acquisition of Baxalta in June 2016. Immunoglobulin and bio therapeutics reported total product sales of $2,940.7 million.


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HAE product sales for the year ended December 31, 2017 increased to $1,429.6 million or 9% from $1,310.9 million in 2016, primarily driven by FIRAZYR, up 15% to $663.0 and CINRYZE up 3% to $699.3 million. During the third quarter of 2017, CINRYZE had a supply constraint caused by a manufacturing interruption at a third-party supplier. The issue was addressed and production resumed in the fourth quarter of 2017. On January 24, 2018, FDA granted approval for the technology transfer of CINRYZE drug product manufacturing process to the Vienna, Austria manufacturing site. The Company expects to start manufacturing CINRYZE drug product in-house in Vienna in the first quarter of 2018, providing an additional supply source to meet patient demand.

Hematology

Hematology, acquired with Baxalta in June 2016, included sales of recombinant and plasma-derived hemophilia products (primarily Factor VIII and Factor IX) and inhibitor therapies. Hematology product sales were $3,785.6 million in 2017 compared to $2,240.8 million in 2016, primarily driven by the inclusion of a full year of Hematology product sales following the acquisition of Baxalta.

Neuroscience

Neuroscience product sales for the year ended December 31, 2017 increased to $2,664.1 million, or 7%, from $2,490.5 million in 2016, with growth primarily driven by VYVANSE and the inclusion of MYDAYIS.

VYVANSE product sales for the year ended December 31, 2017 increased to $2,161.1 million, or 7%, from $2,013.9 million in 2016, due to the benefit of a price increase(1) taken since 2016, increased demand resulting from growth in the U.S. ADHD market and strong performance in the Company's international markets, partially offset by lower U.S. stocking.

MYDAYIS, which was made available to patients on August 28, 2017, contributed $21.6 million of product sales in 2017.

Information about litigation related to MYDAYIS can be found in ITEM 3: Legal Proceedings and Note 25, Legal and Other Proceedings, to the Consolidated Financial Statements set forth in this Annual Report on Form 10-K.

Internal Medicine

Internal Medicine product sales for the year ended December 31, 2017 decreased to $1,670.3 million, or 5%, from $1,755.5 million in 2016, primarily driven by the impact of LIALDA generic competition, partially offset by growth from GATTEX/REVESTIVE and NATPARA.

LIALDA/MEZAVANT product sales decreased to $569.4 million, or 28%, for the year ended December 31, 2017 from $792.1 million in 2016, due to the impact of generic competition in 2017.

Information about litigation related to LIALDA can be found in ITEM 3: Legal Proceedings and Note 25, Legal and Other Proceedings, to the Consolidated Financial Statements set forth in this Annual Report on Form 10-K.

GATTEX/REVESTIVE and NATPARA/NATPAR product sales increased to $335.5 million, or 53%, and $147.4 million or 73%, respectively, for 2017, compared to product sales in 2016 primarily due to an increase in the numbers of patients on therapy and to a lesser extent, the benefit of price increases taken since 2016(1).

Genetic Diseases

Genetic Diseases product sales, which now excludes HAE product sales, for the year ended December 31, 2017 increased to $1,437.7 million, or 4%, from $1,387.1 million in 2016, primarily due to ELAPRASE and REPLAGAL, as both products benefited from an increase in the number of patients on therapy.

Oncology

Oncology, acquired with Baxalta in June 2016, reported product sales of $261.7 million for the year ended December 31, 2017 compared to $130.5 million for the year ended December 31, 2016. Oncology includes sales of ONCASPAR and ONIVYDE. ONIVYDE was approved in the EU on October 18, 2016.


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Ophthalmics

Ophthalmic product sales relate to XIIDRA, which was made available to patients on August 29, 2016. XIIDRA product sales were $259.2 million for the year ended December 31, 2017 compared to $54.4 million for the year ended December 31, 2016.

(1) The actual net effect of price increases on current period net sales compared to the comparative period is difficult to quantify due to the various managed care rebates, Medicaid discounts, other discount programs in which the Company participates and fee for service agreements with wholesale customers.

Royalties and other revenues

Royalties and other revenues increased to $711.7 million or 39% for the year ended December 31, 2017 from $510.8 million in 2016, primarily due to an upfront license fee received, a full year of contract manufacturing revenue acquired with Baxalta, increase in SENSIPAR royalties and an increase in royalty streams acquired with Dyax.
 
Cost of sales
 
Cost of sales increased by $884.3 million to $4,700.8 million for the year ended December 31, 2017 (31% of Total revenues) from $3,816.5 million in 2016 (33% of Total revenues), due to the inclusion of a full year of legacy Baxalta costs. The decrease in Cost of sales as a percentage of Total revenues for the year ended December 31, 2016 to December 31, 2017 is primarily due to the impact of lower expense related to the unwind of inventory fair value adjustments, partially offset by the inclusion of a full year of lower margin product franchises acquired with Baxalta.

For the year ended December 31, 2017, Cost of product sales included additional depreciation totaling $276.1 million (2016: $160.8 million), primarily due to the acquisition of Baxalta.
 
R&D

R&D expense increased by $323.5 million, or 22%, to $1,763.3 million for the year ended December 31, 2017 (12% of Total revenues) from $1,439.8 million in 2016 (13% of Total revenues), primarily due to the inclusion of a full year of legacy Baxalta costs.

R&D expense for the year ended December 31, 2017 included depreciation of $47.2 million (2016: $34.1 million).
 
SG&A

SG&A expense increased by $515.7 million, or 17%, to $3,530.9 million for the year ended December 31, 2017 (23% of Total revenues) from $3,015.2 million in 2016 (26% of Total revenues), primarily due to the inclusion of a full year of legacy Baxalta costs.

For the year ended December 31, 2017, SG&A expense included depreciation of $172.5 million (2016: $98.0 million).
 
Amortization of acquired intangible assets
 
For the year ended December 31, 2017, Shire recorded Amortization of acquired intangible assets of $1,768.4 million compared to $1,173.4 million in 2016. The increase of $595.0 million was primarily related to a full year of amortization of intangible assets acquired with Baxalta and the acceleration of CINRYZE amortization following positive SHP643 Phase 3 results.

Integration and acquisition costs
 
For the year ended December 31, 2017, Shire recorded Integration and acquisition costs of $894.5 million, primarily relating to the Baxalta acquisition. Costs included asset impairment charges, employee severance and expenses associated with facility consolidations.

For the year ended December 31, 2016, Shire recorded Integration and acquisition costs of $883.9 million, primarily relating to the Baxalta and Dyax acquisitions. Costs included employee severance, acceleration of stock compensation, third-party professional fees, contract terminations and other transaction-related fees.

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Reorganization costs
 
For the year ended December 31, 2017, Shire recorded Reorganization costs of $47.9 million, primarily related to the closure of the Basingstoke, U.K. office.

For the year ended December 31, 2016, Shire recorded Reorganization costs of $121.4 million, primarily related to the closure of a facility at the Los Angeles, U.S. manufacturing site.

Other expense, net

Other expense, net increased by $85.0 million to $561.8 million for the year ended December 31, 2017 from $476.8 million in 2016, primarily due to a full year of interest expense incurred on borrowings used to fund the acquisition of Baxalta, reduced by repayments of borrowings and partially offset by lower amortization of one-time upfront borrowing costs for Baxalta and Dyax in 2017.
 
Taxation

The effective tax rate in 2017 was a tax credit of 125% (2016: tax credit of 26%). The effective tax rate in 2017 was lower due to the enactment of the U.S. Tax Cuts and Jobs Act (P.L. 115-97) (Tax Act), which was signed into law on December 22, 2017. Among the changes is a permanent reduction in the federal U.S. corporate income tax rate from 35% to 21% effective January 1, 2018.

As a result of the reduction in the U.S. corporate income tax rate, Shire revalued its net deferred tax positions for the year-ending December 31, 2017. This resulted in a decrease to the net deferred tax liability of approximately $2.5 billion, which was recorded as reduction to income tax expense for the fourth quarter of 2017. In addition, Shire has estimated an income tax liability of $621.7 million related to the transition tax which is applicable to certain non U.S. earnings previously untaxed in the U.S. The Company recorded a $90.1 million income tax expense related to the transition tax and reclassified a deferred tax liability which had been accrued for prior years’ unremitted earnings to income tax payable for the remaining amount. Shire continues to analyze the Tax Act to determine the full effects the new law will have on its financial statements and all amounts recorded in the 2017 financial statements are provisional in nature.

Discontinued operations

The gain from discontinued operations for the year ended December 31, 2017 was $18.0 million, net of taxes, primarily the return of funds previously held in escrow related to the acquisition of the DERMAGRAFT business. The loss from discontinued operations for the year ended December 31, 2016 was $276.1 million, net of tax benefit of $98.9 million, primarily due to the establishment of legal contingencies related to the divested DERMAGRAFT business.
 
Results of operations for the years to December 31, 2016 and 2015
 
Financial highlights for the year ended December 31, 2016 are as follows:

Revenues

Product sales increased by 78% to $10,885.8 million (2015: $6,099.9 million). This increase was primarily due to including $3,887.4 million of Baxalta product sales following the acquisition, and double digit growth of existing franchises, with Neuroscience up 13% and Internal Medicine up 17%. In addition, the Company launched XIIDRA in August 2016 and the Ophthalmology franchise contributed sales of $54.4 million.

Royalties and other revenues increased by 61% to $510.8 million, as the second half of 2016 benefited from additional revenue following the acquisition of Baxalta, primarily related to contract manufacturing activities.


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Operating results

Operating income decreased by 32% to $962.9 million (2015: $1,419.5 million), primarily due to the impact of the acquisition of Baxalta, including higher amortization of inventory fair value adjustments and acquired intangible assets, combined with higher integration and acquisition costs, partially offset by lower impairment charges related to R&D programs.

Earnings per share (EPS)

Diluted earnings per ADS decreased by 81% to $1.27 (2015: $6.59). This decrease was primarily due to lower operating income resulting from the impact of the acquisition of Baxalta and higher integration and acquisition costs, combined with the impact of additional shares issued as consideration for the Baxalta transaction.

Cash flows

Net cash provided by operating activities increased by 14% to $2,658.9 million (2015: $2,337.0 million), primarily due to increased cash receipts from higher sales, partially offset by higher tax and interest payments, costs related to the Baxalta integration and a payment associated with the termination of a biosimilar collaboration assumed from the acquisition of Baxalta.
  

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Total revenues
 
The following table provides an analysis of the Company’s Total revenues by source. In 2017, Immunology includes HAE from Genetic Diseases; prior year amounts have been reclassified to conform with the current year presentation.  
 
Years ended December 31,
 
Product sales growth
(In millions)
2016
 
2015
 
%
Product sales by franchise
 
 
 
 
 
IMMUNOGLOBULIN THERAPIES
$
1,143.9

 
$

 
N/M

HEREDITARY ANGIOEDEMA
1,310.9

 
1,062.7

 
23
 %
BIO THERAPEUTICS
372.2

 

 
N/M

Immunology
2,827.0

 
1,062.7

 
N/M

HEMOPHILIA
1,789.0

 

 
N/M

INHIBITOR THERAPIES
451.8

 

 
N/M

Hematology
2,240.8

 

 
N/M

VYVANSE
2,013.9