10-K 1 dp36338_10k.htm FORM 10-K

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, 2012

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-29630

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.)

5 Riverwalk, Citywest Business Campus, Dublin 24, Republic of Ireland (Address of principal executive offices and zip code)	+353 1 429 7700 (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 [ ]

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 [ ] 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 [ ]

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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [X]

Accelerated filer

Non-accelerated filer

Smaller reporting company

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] 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 [ ]

As at June 30, 2012, 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 $16 billion. This was computed using the average bid and asked price at the above date.

As at February 15, 2013, the number of outstanding ordinary shares of the Registrant was 562,561,878.

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

Statements included herein that are not historical facts are forward-looking statements. Such forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, Shire’s results could be materially adversely affected. The risks and uncertainties include, but are not limited to, that:

Shire’s products may not be a commercial success;

revenues from ADDERALL XR are subject to generic erosion;

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

Shire relies on a single source for manufacture of certain of its products and a disruption to the supply chain for those 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;

Shire uses third party manufacturers to manufacture many of its products and is reliant upon third party contractors for certain goods and services, and any inability of these third party manufacturers to manufacture products, or any failure of these third party contractors to provide these goods and services, in each case in accordance with its respective contractual obligations, could adversely affect Shire’s ability to manage its manufacturing processes or to operate its business;

the development, approval and manufacturing of Shire’s products is subject to extensive oversight by various regulatory agencies and regulatory approvals or interventions associated with changes to manufacturing sites, ingredients or manufacturing processes could lead to significant delays, increase in operating costs, lost product sales, an interruption of research activities or the delay of new product launches;

the actions of certain customers could affect Shire 's ability to sell or market products profitably and fluctuations in buying or distribution patterns by such customers could adversely impact Shire’s revenues, financial conditions or results of operations;

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

adverse outcomes in legal matters and other disputes, including Shire’s ability to obtain, maintain, enforce and defend patents and other intellectual property rights required for its business, could have a material adverse effect on Shire’s revenues, financial condition or results of operations;

and other risks and uncertainties detailed from time to time in Shire’s filings with the Securities and Exchange Commission, including those risks outlined in “Item 1A: Risk Factors” in Shire’s Annual Report on Form 10-K for the years ended December 31, 2012 and 2011.

The following are trademarks either owned or licensed by Shire plc or its subsidiaries, which are the subject of trademark registrations in certain territories, or which are owned by third parties as indicated and referred to in this Form 10-K:

ADDERALL XR® (mixed salts of a single entity amphetamine)

AGRYLIN® (anagrelide hydrochloride)

APLIGRAF® (trademark of Organogenesis, Inc. (“Organogenesis”))

APRISO® (trademark of Salix Pharmaceuticals, Ltd. (“Salix”))

ASACOL® (trademark of Medeva Pharma Suisse AG (used under license by Warner Chilcott Company, LLC (“Warner Chilcott”)))

ATRIPLA® (trademark of Bristol Myers Squibb Company and Gilead Sciences, Inc. (“Gilead”))

BERINERT P® (trademark of Aventis Behring GmbH)

CARBATROL® (carbamazepine extended-release capsules)

CEREZYME® (trademark of Genzyme Corporation (“Genzyme”))

CINRYZE® (trademark of Viropharma Biologics, Inc.)

CLAVERSAL® (trademark of Merckle Recordati)

COLAZAL® (trademark of Salix Pharmaceuticals, Inc)

COMBIVIR® (trademark of GlaxoSmithKline (“GSK”))

CONCERTA® (trademark of Alza Corporation (“Alza”))

DAYTRANA® (trademark of Noven Pharmaceutical Inc. (“Noven”))

DERMAGRAFT® (human fibroblast-derived dermal substitute)

DYNEPO® (trademark of Sanofi-Aventis)

ELAPRASE® (idursulfase)

ELELYSO® (trademark of Pfizer Inc.)

ELVANSE® (lisdexamfetamine dimesylate)

EPIFIX® (trademark of Surgical Biologics, LLC)

EPIVIR® (trademark of GSK)

EPZICOM®/KIVEXA (EPZICOM) (trademark of GSK)

EQUASYM® (methylphenidate hydrochloride)

EQUASYM XL® (methylphenidate hydrochloride)

FIRAZYR® (icatibant)

FOCALIN® (trademark of Novartis AG)

FOSRENOL® (lanthanum carbonate)

FABRAZYME® (trademark of Genzyme)

INTUNIV® (guanfacine extended release)

KALBITOR® (trademark of Dyax Corporation)

KAPVAY® (trademark of Shionogi Pharma, Inc. (“Shionogi”))

KIVEXA® (trademark of Viiv Healthcare UK Ltd)

LIALDA® (trademark of Nogra International Limited

MEDIKINET® (trademark of Medice Arzneimittel Pütter GmbH & Co. KG (“Medice”))

METADATE CD® (trademark of UCB Pharma, S.A.)

MEZAVANT® (trademark of Giuliani International Limited)

MICROTROL® (trademark of Supernus Pharmaceuticals, Inc. (“Supernus”))

MOVICOL® (trademark of Edra AG, S.A.)

OASIS® (trademark of Healthpoint, Ltd. (“Healthpoint”))

PENTASA® (trademark of Ferring B.V. Corp (“Ferring”))

QUILLIVANT (trademark of Next Wave Pharmaceuticals, Inc.)

REGRANEX® (trademark of Healthpoint)

REMINYL® (galantamine hydrobromide) (United Kingdom ("UK”) and Republic of Ireland) (trademark of Johnson & Johnson (“J&J”), excluding UK and Republic of Ireland)

REMINYL XL™ (galantamine hydrobromide) (UK and Republic of Ireland) (trademark of J&J, excluding UK and Republic of Ireland)

RENASYS® (trademark of Smith & Nephew Plc (“Smith & Nephew”))

REPLAGAL® (agalsidase alfa)

RESOLOR® (prucalopride)

RITALIN LA® (trademark of Novartis AG)

RUCONEST® (trademark of Pharming Intellectual Property B.V.)

SALOFALK® (trademark of Dr Falk Pharma)

STRATTERA® (trademark of Eli Lilly and Company)

THERASKIN® (trademark of Soluble Systems, LLC)

TRIZIVIR® (trademark of GSK)

TRUVADA® (trademark of Gilead)

TYVENSE® (lisdexamfetamine dimesylate)

VENVANSE® (lisdexamfetamine dimesylate)

VPRIV® (velaglucerase alfa)

VYVANSE® (lisdexamfetamine dimesylate)

XAGRID® (anagrelide hydrochloride)

ZAVESCA® (trademark of Actelion Pharmaceuticals, Ltd.)

ZEFFIX® (trademark of GSK)

3TC® (trademark of GSK)

SHIRE PLC

2012 Form 10-K Annual Report

Table of contents

PART I
ITEM 1. BUSINESS
	General	7
	Strategy	7
	2012 highlights	7
	Financial information about operating segments	8
	Sales and marketing	8
	Manufacturing and distribution	21
	Intellectual property	23
	Competition	26
	Government regulation	28
	Third party reimbursement	29
	Responsibility	30
	Employees	30
	Available information	31

ITEM 1A.	RISK FACTORS	32
ITEM 1B.	UNRESOLVED STAFF COMMENTS	38
ITEM 2.	PROPERTIES	39
ITEM 3.	LEGAL PROCEEDINGS	40
ITEM 4.	MINE SAFETY DISCLOSURES	40

PART II
ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	41
ITEM 6.	SELECTED FINANCIAL DATA	45
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	47
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	75
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	78
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	78
ITEM 9A.	CONTROLS AND PROCEDURES	78
ITEM 9B.	OTHER INFORMATION	78

PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	79
ITEM 11.	EXECUTIVE COMPENSATION	84
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	106
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	107
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	107

PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	109

PART I

ITEM 1: Business

General

Shire plc and its subsidiaries (collectively referred to as either “Shire”, or the “Company”) is a leading specialty biopharmaceutical company that focuses on meeting the needs of the specialist physician.

The Company has grown through acquisition, completing a series of major transactions that have brought therapeutic, geographic and pipeline growth and diversification. The Company will continue to evaluate companies, products and pipeline opportunities that offer a good strategic fit and have the potential to deliver demonstrable value to all of the Company’s stakeholders: patients, physicians, policy makers, payors, investors and employees.

Strategy

The Company’s vision is to imagine and lead the future of healthcare for people with life-altering conditions, creating value for society. The Company’s strategy for achieving its vision is to focus on treatments and services for symptomatic conditions in areas of high medical need, so patients experience a noticeable and ongoing improvement in their lives. Through deep understanding of patients’ needs, the Company develops and provides healthcare in the areas of:

·	Behavioral Health and Gastro Intestinal conditions;

·	Rare Genetic Diseases; and

·	Regenerative Medicine;

as well as other symptomatic conditions treated by specialist physicians. To serve different patient groups, the Company operates in three distinct business units: Specialty Pharmaceuticals (“SP”), Human Genetic Therapies (“HGT”) and Regenerative Medicine (“RM”). The Company’s businesses each have their own commercial infrastructures, dedicated research and development (“R&D”) and supply chain management and appropriate global reach.

2012 Highlights

See “Currently marketed products” and “Products under development” below for a full discussion of 2012 Product, pipeline and business highlights, including:

Pipeline development:

the approval through the European Decentralised Procedure for an oral powder formulation of FOSRENOL;

the initiation of Phase 3 clinical trials for lisdexamfetamine dimesylate (“LDX”) (marketed as VYVANSE in the US for the treatment of attention deficit and hyperactivity disorder (“ADHD”)) for the treatment of negative symptoms of schizophrenia (“NSS”) and binge eating disorder (“BED”);

the completion of the Phase 1/2 clinical trials for HGT 2310 for the treatment of Hunter syndrome with CNS symptoms and HGT 1410 for Sanfilippo A syndrome;

the initiation of Phase 3 clinical trials for ABH001 for the treatment of Epidermolysis Bullosa (“EB”);

Geographical expansion:

the approval of DERMAGRAFT in Canada for the treatment of diabetic foot ulcers (“DFU”);

positive outcome from the European Decentralised Procedure (“DCP”) for ELVANSE (marketed as VYVANSE in the US and to be known as TYVENSE in Ireland);

Shionogi co-development and co-commercialization agreement for VYVANSE and INTUNIV in Japan.

Business development:

the acquisition of the US rights to prucalopride (marketed in certain countries in Europe as RESOLOR);

the acquisition of FerroKin BioSciences, Inc. (“FerroKin”) which added global rights to a Phase 2 product, SPD 602 (formerly referred to as FBS0701), for the treatment of iron overload to Shire’s SP pipeline;

the acquisition of substantially all of the assets and certain liabilities of Pervasis Therapeutics, Inc. (“Pervasis”), which added SRM-003 (formerly VASCUGEL) to Shire’s RM business;

Collaboration and in-licensing:

the initiation of a collaboration and license agreement with Sangamo Biosciences Inc. (“Sangamo”) to develop therapeutics for hemophilia and other monogenic diseases based on Sangamo’s zinc finger DNA-binding protein (“ZFP”) technology.

Financial information about operating segments

Shire’s internal financial reporting is consistent with its business unit and management reporting structure. The Company has three business units and three reporting segments: SP, HGT and RM. Substantially all of the Company’s revenues, expenditures and net assets are attributable to the R&D, manufacture, sale and distribution of pharmaceutical products within SP and HGT and of medical devices within RM. The Company also earns royalties and milestone payments (where Shire has out-licensed certain product rights to third parties) which are recorded as revenues. Segment revenues, profits or losses and assets for 2012, 2011 and 2010 are presented in Note 23 to the Company’s consolidated financial statements contained in ITEM 15: Exhibits and Financial Statement Schedules of this Annual Report on Form 10-K.

Sales and marketing

At December 31, 2012 the Company employed 2,207 (2011: 2,395) sales and marketing staff to service its operations throughout the world, including its major markets in the US and Europe.

Currently marketed products

The table below lists the Company’s material marketed products at December 31, 2012 indicating the owner/licensor, disease area and the key territories in which Shire markets the product.

SP

Products	Disease area	Owner/licensor	Key territories

Treatments for ADHD

VYVANSE/VENVANSE (lisdexamfetamine dimesylate)	ADHD	Shire	US, Europe, Canada and Brazil (1)

ADDERALL XR (mixed salts of a single-entity amphetamine)	ADHD	Shire	US and Canada

INTUNIV (extended release guanfacine)	ADHD	Shire	US

EQUASYM (methylphenidate hydrochloride) modified release (XL)	ADHD	Shire	Europe and Latin America(2)

Treatments for gastrointestinal (“GI”) diseases

LIALDA (mesalamine)/ MEZAVANT(mesalazine)	Ulcerative colitis	Nogra SpA	US, Canada and Europe (2,3)

PENTASA (mesalamine)	Ulcerative colitis	Shire	US

RESOLOR (prucalopride)	Chronic constipation in women	Shire	Europe

Treatments for diseases in other therapeutic areas
FOSRENOL (lanthanum carbonate)	Hyperphosphatemia in end stage renal disease	Shire	US, Europe and Japan(2, 4)

XAGRID (anagrelide hydrochloride)	Elevated platelet counts in at risk essential thrombocythemia patients	Shire	Europe (2)

HGT

Products	Disease area	Owner/licensor	Key territories

REPLAGAL (agalsidase alfa)	Fabry disease	Shire	Europe, Latin America and Asia Pacific(5)

ELAPRASE (idursulfase)	Hunter syndrome (Mucopolysaccharidosis Type II, MPS II)	Shire	US, Europe, Latin America and Asia Pacific(6)

VPRIV (velaglucerase alfa)	Gaucher disease, Type 1	Shire	US, Europe and Latin America

FIRAZYR (icatibant)	Hereditary Angioedema (“HAE”)	Shire	US, Europe and Latin America

RM

Products	Disease area	Owner/licensor	Key territories

DERMAGRAFT (human fibroblast-derived dermal substitute)	Diabetic Foot Ulcers (“DFU”)	Shire	US and Canada

(1) The product is marketed in Brazil as VENVANSE and in the EU as ELVANSE or TYVENSE.

(2) Marketed by distributors in certain markets.

(3) Marketed in US as LIALDA and in Europe as MEZAVANT XL or MEZAVANT.

(4) Marketed in Japan under license by Bayer Yakuhin Limited (“Bayer”).

(5) Marketed in Japan under license by Dainippon Sumitomo Pharma Co., Ltd. (“DSP”).

(6) Marketed in Asia Pacific under license by Genzyme.

Specialty Pharmaceuticals

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.

The worldwide prevalence of ADHD is estimated at 5.3% (Am J Psych. 2007). In the US, approximately 9.5% of all school-aged children (4-17 years old) have been diagnosed with ADHD at some point in their lives. However, only two-thirds (66.3%) of those with a current ADHD diagnosis were taking medication (CDC, 2010). Over 50% of children may have symptoms that persist into adulthood. According to the results from the National Comorbidity Survey Replication (Am J Psychiatry, 2006), the disorder is estimated to affect 4.4% of US adults aged 18 to 44. The international ADHD market was $0.97 billion in 2011 (moving annual total (“MAT”) Q3 2011) and grew 13.7% to reach $1.1 billion in the same period in 2012.

According to IMS Health National Prescription Audit (“IMS NPA”), a leading global provider of business intelligence for the pharmaceutical and healthcare industries, the US market for ADHD treatments was valued at approximately $8.4 billion for the twelve months ending December 31, 2012, an increase of 15% from the twelve months ending December 31, 2011.

VYVANSE/ VENVANSE/ ELVANSE/ TYVENSE

VYVANSE is the first pro-drug 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 US Food and Drug Administration (“FDA”) approved VYVANSE as a once-daily treatment for children aged 6 to 12 with ADHD in February 2007, for adults in April 2008, for adolescents aged 13 to 17 in November 2010 and for maintenance treatment in adults with ADHD in January 2012, the first product in its class with this indication. VYVANSE is available in the US in six dosage strengths: 20mg, 30mg, 40mg, 50mg, 60mg and 70mg.

VYVANSE had New Chemical Entity (“NCE”) exclusivity through to February 23, 2012 and is also covered by US patents of which the last to expire remain in effect until June 29, 2023.

VYVANSE was approved by Health Canada for the treatment of ADHD in paediatric patients aged 6 to 12 in February 2009, for adolescents and adults in November 2010, and was launched in Canada in February 2011.

VENVANSE was granted marketing authorization by ANVISA, the Brazilian health authority, for the treatment of ADHD in children aged 6-12, and launched in April 2011.

ELVANSE/TYVENSE received a positive outcome from the European Decentralised Procedure in December 2012. ELVANSE is indicated as part of a comprehensive treatment program for ADHD in children aged 6 years of age and over when response to previous methylphenidate treatment is considered clinically inadequate. Product labelling has been agreed by eight countries (UK, Germany, Sweden, Spain, Norway, Finland, Denmark, and Ireland). Marketing Authorization approvals have been granted by the UK and Ireland and launches are planned in the first half of 2013. Marketing Authorizations approvals in the remaining countries are expected throughout the first half of 2013.

Litigation proceedings relating to the Company’s VYVANSE patents are in progress. For further information see ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.

ADDERALL XR

ADDERALL XR is an extended release treatment for ADHD, which uses MICROTROL drug delivery technology and is designed to provide once-daily dosing. It is available in 5mg, 10mg, 15mg, 20mg, 25mg and 30mg capsules.

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.

Teva Pharmaceutical Industries, Ltd. (“Teva”) and Impax Laboratories, Inc. (“Impax”) commenced commercial shipment of their authorized generic versions of ADDERALL XR in April and October 2009, respectively. Shire currently receives royalties from Impax’s sales of authorized generic ADDERALL XR.

In October 2005 the Company filed a Citizen Petition with the FDA requesting that the FDA require more rigorous bioequivalence testing for generic or follow-on drug products that reference ADDERALL XR before they can be approved. In June 2012 Shire received a ruling from the FDA on the Citizen Petition. In its response, the FDA stated that it will require that all abbreviated new drug applications (“ANDAs”) will have to establish bioequivalence using partial area under the curve measurements at multiple time points post-dosing and for both d- and l-amphetamine. The FDA response is consistent with recent decisions on other long-acting ADHD products.

Litigation proceedings relating to ADDERALL XR are in progress. For further information see ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.

INTUNIV

INTUNIV is the first in a new class of approved ADHD medications, a selective alpha-2A receptor agonist indicated for the treatment of ADHD. Alpha-2A-adrenoceptors strengthen working memory networks by inhibiting cAMP-HCN channel signalling in the prefrontal cortex (Cell. 2007;129:397-410). INTUNIV is non-scheduled and has no known potential for abuse or dependence.

The FDA approved INTUNIV as a once-daily monotherapy treatment of ADHD in children and adolescents aged 6 to 17 and as adjunctive therapy to stimulants in February 2011. It is available in 1mg, 2 mg, 3 mg and 4 mg tablets.

Litigation proceedings relating to the Company’s INTUNIV patents are in progress. For further information see ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.

EQUASYM

In March 2009, Shire acquired from UCB the worldwide rights (excluding the US, Canada and Barbados) to EQUASYM immediate release and modified release (XL) preparations for the treatment of ADHD in children and adolescents aged 6 to 17. Shire is focusing exclusively on the XL form. At December 31, 2012 EQUASYM XL was commercially available in 10 countries in 10mg, 20mg and 30mg strengths. EQUASYM XL is marketed in Mexico and South Korea under the trade name METADATE CD.

Treatments for GI diseases - Ulcerative Colitis (“UC”)

Ulcerative Colitis was estimated to affect approximately 1.2 million patients in major markets (US and EU5) in 2010 according to Ulcerative Colitis: Decision Resources’ Market Forecast and Opportunity Analysis (May, 2012). Ulcerative colitis is a serious chronic inflammatory disease of the colon in which part or all of the large intestine becomes inflamed and often ulcerated. Typically, patients go through periods of relapse and remission and can suffer from diarrhea, bleeding and abdominal pain. Once diagnosis is confirmed, patients are usually treated for life. The first line treatment for inflammatory bowel disease is mesalamine (5-aminosalicylic acid (“5-ASA”)) based products.

LIALDA/MEZAVANT

LIALDA is indicated in the US and Canada for the induction of remission in patients with mild to moderately active UC and for the maintenance of remission of UC. The addition of the indication for maintenance of remission of ulcerative colitis was approved by Health Canada in February 2011 and by the FDA in July 2011. LIALDA is the first and only FDA-approved once-daily oral formulation of mesalamine indicated for the induction and maintenance of remission. LIALDA contains the highest commercially available mesalamine dose per tablet (1.2g), so patients can take as few as two tablets once daily. In 2012, the FDA issued draft bioequivalency guidance for orally-delivered delayed or extended-release mesalamine-based drugs (including LIALDA and PENTASA; see PENTASA section below).

LIALDA was approved by the FDA in January 2007 and was launched in the US in March 2007. Following approvals in 2007 in the EU and Canada, at December 31, 2012 LIALDA/MEZAVANT (this product is marketed outside the US as MEZAVANT) was commercially available in 19 countries either directly or through distributor arrangements.

Litigation proceedings relating to the patents protecting LIALDA are in progress. For further information see ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.

PENTASA

PENTASA controlled release capsules are marketed by Shire in the US and are indicated for the induction of remission and for the treatment of patients with mild to moderately active UC.

PENTASA is an ethylcellulose-coated, controlled release capsule formulation designed to release therapeutic quantities of mesalamine throughout the gastrointestinal tract. PENTASA is available in the US in 250mg and 500mg capsules.

In September 2008 the Company filed a Citizen Petition with the FDA requesting that the FDA require more rigorous bioequivalence testing for generic or follow-on drug products that reference PENTASA before they can be approved. On August 24, 2010 Shire received a ruling from the FDA on the Citizen Petition. The ruling granted Shire’s request with regard to the requirement that bioequivalence to PENTASA be shown by dissolution testing and further imposed a requirement for rigorous pharmacokinetic data. The ruling denied the request that studies with clinical endpoints should also be required because the FDA concluded that comparative clinical endpoint studies would be less sensitive, accurate and reproducible than pharmacokinetic studies. In September 2012, the FDA issued draft bioequivalency guidance for orally-delivered delayed or extended-release mesalamine-based drugs (including LIALDA and PENTASA). These guidelines lay out a three-study approach for generic approval which includes fed and fasting studies with rigorous

pharmacokinetic analyses and an in vitro dissolution study covering a range of pH values. These recommendations are consistent with the FDA’s August 2010 response to the ASACOL and PENTASA Citizen Petitions.

Treatments for GI diseases - chronic constipation

Chronic idiopathic constipation is a widespread and often debilitating disorder. The constipated patient population can be split into three distinct groups: (1) patients with primary constipation (without other underlying diseases or not caused by use of medication); (2) patients constipated as a result of regular use of medication such as opioids and (3) patients with severe constipation resulting from neurodegenerative disorders such as multiple sclerosis and Parkinson’s disease. Chronic constipation is characterized by infrequent and difficult passage of stool over a prolonged period. Other symptoms include infrequent bowel movements, bloating, straining, abdominal discomfort and pain, incomplete evacuation and unsuccessful attempts at evacuation. The disease has been clearly defined by the widely accepted Rome III criteria based on the type and duration of the symptoms. Chronic constipation is seen as a persistent disease with approximately 70% of patients having more than three symptom episodes per week.

RESOLOR

RESOLOR is the first of a new generation of selective, high-affinity 5-HT4 receptor agonists that stimulates gastrointestinal motility and acts primarily on different parts of the lower gastrointestinal tract (prokinetic).

In October 2009 RESOLOR was approved by the EMA throughout the EU as a once daily oral treatment for symptomatic treatment of chronic constipation in women in whom laxatives fail to provide adequate relief. In July 2010, Swissmedic granted RESOLOR marketing authorization in Switzerland for the treatment of idiopathic chronic constipation in adults for whom the currently available treatment options involving dietary measures and laxatives do not provide sufficient effect. RESOLOR is available in 1mg and 2mg dose strengths, both for once-daily dosing. As of December 31, 2012 RESOLOR was available in 17 EU countries.

On January 10, 2012 Shire announced that it had acquired the rights to develop and market prucalopride in the US pursuant to an agreement with Janssen Pharmaceutica N.V., part of the J&J Group.

FOSRENOL

FOSRENOL is a phosphate binder that is indicated for use in end-stage renal disease (stage 5) receiving dialysis and, from October 2009, is also indicated in the EU for the treatment of adult patients with CKD who are not on dialysis with serum phosphate > 1.78 mmol/L (5.5 mg/dL) in which a low phosphate diet alone is insufficient to control serum phosphate levels. It is estimated that there are approximately 2 million patients worldwide with end-stage renal disease on dialysis (Nephrol Dial Transplant, 2005). In this condition the kidneys are unable to regulate the balance of phosphate in the body. If untreated, the blood phosphate levels can become elevated (hyperphosphatemia). The Kidney Disease Improving Global Outcomes (KDIGO) guidelines recommend that serum phosphate levels in CKD patients should be managed towards normal (Kidney International, 2009). FOSRENOL binds dietary phosphate in the gastrointestinal tract to prevent it from passing through the gut lining and, based upon this mechanism of action, phosphate absorption from the diet is decreased.

Formulated as a chewable tablet, FOSRENOL is available in 500mg, 750mg and 1,000mg dosage strengths. The FDA approved the 500mg dosage strength in 2004 and the 750mg and 1,000 mg dosage strengths were approved in 2005. In March 2009 FOSRENOL was launched in Japan. An oral powder formulation was approved and made available in certain European countries in 2012.

XAGRID

Myeloproliferative disorders (“MPD”), including essential thrombocythemia (“ET”), are a group of diseases in which one or more blood cell types are overproduced. In the case of ET, excess numbers of platelets, which are involved in the blood clotting process, can result in abnormal blood clot formation giving rise to events such as heart attack and stroke. Excessive platelet production can also lead to the formation of abnormal platelets, which may not be as effective in the clotting process. This can lead to events such as gastrointestinal bleeding.

XAGRID is marketed in Europe for the reduction of elevated platelet counts in at-risk ET patients. It was granted a marketing authorization in the EU in November 2004. XAGRID has been granted orphan drug status in the EU, providing it with up to ten years market exclusivity from November 2004.

In the US, anagrelide hydrochloride is sold by the Company under the trade name AGRYLIN for the treatment of thrombocythemia secondary to a MPD. Generic versions of AGRYLIN have been available in the US market since expiration of marketing exclusivity in 2005.

Human Genetic Therapies

REPLAGAL

REPLAGAL is currently the global market leader for the treatment of Fabry disease. 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. The disease is estimated to affect 1 in 27,000 people (Spada et al, 2006).

REPLAGAL is a fully human alpha-galactosidase A protein made in human cells that replaces 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. At December 31, 2012 REPLAGAL was approved in 46 countries excluding the US.

ELAPRASE

ELAPRASE is a 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 called mucopolysaccharides, also known as glycosaminoglycans or GAGs. 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. The disease is estimated to affect approximately 1 in 162,000 males (Meikle et al, 1999).

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 has been granted orphan drug exclusivity by both the FDA and the EMA, providing it with up to 7 and 10 years market exclusivity in the US and EU, respectively, from the date of the grant of the relevant marketing authorization. ELAPRASE also benefits from the 12 years of data exclusivity from the date of grant of registration given to innovator biologics in the US under the Affordable Care Act.

ELAPRASE received approval from the Ministry of Health, Labour and Welfare 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.

At December 31, 2012 ELAPRASE was approved in 51 countries.

VPRIV

VPRIV is a 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. The disease is estimated to affect 1 in 40,000 individuals, with a higher incidence in the Ashkenazi Jewish population (Sidransky et al, 2010, and National Gaucher Foundation).

VPRIV was approved by the FDA in February 2010 for the long-term treatment of patients with Type 1 Gaucher disease. The EMA approved the marketing authorization for the use of VPRIV in August 2010. VPRIV was authorized as an orphan medicine through the Centralised Procedure in Europe with up to ten years market exclusivity from August 2010. VPRIV also benefits from the 12 years of data exclusivity from the date of grant of registration given to innovator biologics in the US under the Affordable Care Act.

At December 31, 2012 VPRIV was approved in 40 countries.

FIRAZYR

FIRAZYR is a first-in-class peptide-based therapeutic developed for the symptomatic treatment of acute attacks of HAE. HAE is a debilitating and potentially life-threatening genetic disease characterized by unpredictable recurring swelling attacks in the hands, feet, face, larynx, or abdomen. The disease is estimated to affect approximately 1 in 50,000 individuals (Bowen et al, 2008).

In July 2008 the EMA granted marketing authorization throughout the EU for the use of FIRAZYR for the symptomatic treatment of acute attacks of HAE, and in May 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 US 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 7 and 10 years market exclusivity in the US and EU, respectively, from the date of the grant of the relevant marketing authorization.

At December 31, 2012 FIRAZYR was approved in 38 countries.

Regenerative Medicine

DERMAGRAFT

DERMAGRAFT is a bio-engineered skin substitute that assists in restoring damaged tissue.

DERMAGRAFT is indicated for use in the treatment of full-thickness DFUs greater than six weeks in duration, which extend through the dermis, but without tendon, muscle, joint capsule, or bone exposure. DFUs are open sores or ulcers on the feet that can occur in people with diabetes as a result of peripheral neuropathy, or damage to the nerves, and can severely compromise a patient’s quality of life. It is estimated that approximately 2 million people annually in the US are diagnosed with a DFU, of which an estimated 30% are eligible for treatment with DERMAGRAFT, based on its approved indication (Snyder et al. 2010).

DERMAGRAFT was approved by the FDA in 2001 as a Class III medical device for the treatment of DFUs and was approved by Health Canada as a Class IV medical device for the treatment of DFUs in September 2012. DERMAGRAFT is also approved for the treatment of DFUs in Israel, Mexico and Malaysia and the Company is exploring commercialization opportunities for those countries.

Royalties received from other products

Antiviral products

The Company receives royalties on antiviral products based on certain of the Company’s patents licensed to GSK. These antiviral products are for Human Immunodeficiency Virus (“HIV”) and Hepatitis B virus. Royalty terms expired in most territories outside of the US during 2012. In the US, royalty terms expire between 2014 and 2018.

ADHD

ADDERALL XR

Shire receives royalties from Impax’s sales of its authorized generic version of ADDERALL XR. From the third quarter of 2012 Shire also started receiving royalties from Actavis’ sales of their generic version of ADDERALL XR.

Hyperphosphatemia

FOSRENOL

The Company 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. The Company 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.

Other royalties

The Company has licensed the rights to certain other products to third parties and receives royalties on third party sales.

Products under development

The Company focuses its development resources on projects within its core therapeutic areas of behavioral health, GI, HGT and RM, as well as early development projects in additional therapeutic areas. Total R&D expenditures of $965.5 million, $770.7 million and $661.5 million were incurred in the years ended December 31, 2012, 2011 and 2010 respectively.

The table below lists the Company’s products in clinical development and registration as of December 31, 2012 by disease areas 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 pages 23-25 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 at December 31, 2012	The Company’s territorial rights
SP

Treatments for Behavioral Health
INTUNIV (extended release guanfacine)	ADHD	Registration in Canada (Regulatory submission in Q4 2011)	Global

VYVANSE (lisdexamfetamine dimesylate)	ADHD maintenance treatment in children and adolescents	Registration in US (Regulatory submission in Q2 2012)	Global

INTUNIV	ADHD in children and adolescents	Phase 3 in EU (entered Phase 3 in Q2 2010)	Global

LDX (lisdexamfetamine dimesylate)	Adjunctive therapy in MDD	Phase 3 in US (entered Phase 3 in Q4 2011)	Global

LDX (lisdexamfetamine dimesylate)	BED in adults	Phase 3 in US (entered Phase 3 in Q4 2012)	Global

LDX (lisdexamfetamine dimesylate)	NSS	Phase 3 in US (entered Phase 3 in Q4 2012)	Global

LDX (lisdexamfetamine dimesylate)	ADHD in children and adolescents	Phase 2-ready in Japan	Global(1)

INTUNIV	ADHD in children and adolescents	Phase 3-ready in Japan	Global(1)

SPD554	Various central nervous system (“CNS”) disorders	Phase 2-ready	Global


Treatments for GI diseases

RESOLOR (prucalopride)	Chronic Constipation (Males)	Phase 3 in EU (entered Phase 3 in Q4 2010)	Europe

SPD 555 (prucalopride)	Chronic Constipation	Phase 3-ready in US	US (2)

SPD 557	Refractory gastroesophageal reflux disease (“rGERD”)	Phase 2	Europe and North America

Treatments for diseases in other therapeutic areas

XAGRID	Essential thrombocythaemia	Phase 3 in Japan (entered Phase 3 in Q4 2010)	Global

SPD 602 (FBS 0701)	Chronic Iron-overload	Phase 2	Global

HGT

FIRAZYR	ACE inhibitor-induced Angioedema	Registration in Europe Phase 3 ready in US	Global

HGT- 4510	Duchenne Muscular Dystrophy (“DMD”)	Phase 2a (currently on clinical hold)	Global

HGT- 2310	Hunter Syndrome with CNS symptoms	Phase 1/ 2	Global (3)

HGT- 1410	Sanfilippo A Syndrome (MPS IIIA)	Phase 1/ 2	Global(3)

HGT- 1110	Metachromatic Leukodystrophy (“MLD”)	Phase 1/ 2	Global

RM

ABH 001	EB	Phase 3 in US (entered Phase 3 in Q4 2012)	Global

SRM - 003	Arteriovenous (“AV”) access in hemodialysis patients	Phase 2	Global

(1)	Under co-development with Shionogi as a result of a license and collaboration agreement.

(2)	US rights were acquired from J&J in January 2012.

(3)	Genzyme has rights to manage marketing and distribution in Japan and certain other Asia Pacific countries under a license with Shire.

SPECIALTY PHARMACEUTICALS

Treatments for Behavioral Health

INTUNIV for the treatment of ADHD in Canada

In October 2011 Shire submitted a New Drug Submission (“NDS”) seeking the approval in Canada for INTUNIV for the treatment of ADHD in children and adolescents aged 6 to 17. Health Canada accepted the NDS for screening in December 2011.

VYVANSE for the treatment of ADHD in the US

In September 2012, the FDA accepted the filing for review of a supplemental New Drug Application (“sNDA”) for VYVANSE (lisdexamfetamine dimesylate) Capsules, (scheduled as CII) seeking approval as a maintenance treatment in children and adolescents ages 6 to 17 years with ADHD. There are currently no stimulants approved for maintenance treatment in children and adolescents ages 6 to 17 years with ADHD. The FDA has issued a Prescription Drug User Fee Act (“PDUFA”) action date of April 29, 2013.

INTUNIV for the treatment of ADHD in the EU

INTUNIV for the treatment of ADHD in children aged 6 to 17 in the EU is in Phase 3 development.

LDX1 for the treatment of inadequate response in MDD

A Phase 3 clinical program to assess the efficacy and safety of LDX as adjunctive therapy in patients with MDD is ongoing with headline data expected in the second half of 2013.

(1) LDX, currently marketed as VYVANSE in the US and ELVANSE in certain countries in the EU for the treatment of ADHD.

LDX for the treatment of BED

A Phase 3 clinical program to evaluate the efficacy and safety of LDX in adults with BED was initiated in the fourth quarter of 2012.

LDX for the treatment of NSS

A Phase 3 clinical program to evaluate the efficacy and safety of LDX as adjunctive treatment to antipsychotic medications on negative symptoms in adults who have persistent predominant NSS was initiated in the fourth quarter of 2012.

LDX for the treatment of ADHD in Japan

Under a collaboration agreement, Shionogi and Shire will co-develop and sell ADHD products in Japan, including LDX. The LDX program is Phase 2-ready.

INTUNIV for the treatment of ADHD in Japan

Under a collaboration agreement, Shionogi and Shire will co-develop and sell ADHD products in Japan, including INTUNIV. The INTUNIV program is Phase 3-ready.

SPD - 554 (selective α2A agonist) for the treatment of various CNS disorders

The completed Phase 1 program supports planned progression in two different CNS-related indications: hyperactivity in Autism Spectrum Disorder (and potentially other domains where the mechanism may show benefit) and Pediatric Anxiety Disorder. This program is Phase 2-ready. Progression of a program in ADHD has been discontinued.

Treatments for GI diseases

RESOLOR for the treatment of chronic constipation in males

A Phase 3 European clinical trial to further assess the efficacy of RESOLOR for the treatment of chronic constipation in males was initiated in 2010 and is ongoing.

SPD - 555 (prucalopride; marketed as RESOLOR in the EU) for the treatment of chronic constipation in the US

On January 10, 2012, Shire announced that it had acquired the rights to develop and market prucalopride in the US in an agreement with Janssen Pharmaceutica N.V. This product is Phase 3-ready and definitive plans will be implemented following discussions with regulatory authorities.

SPD - 557 for the treatment of rGERD

SPD - 557 (M0003) is a selective 5-HT4 receptor agonist. An additional Phase 2b clinical trial has been initiated to assess the efficacy of SPD - 557 as an adjunctive therapy for treatment of rGERD in patients with persistent symptoms of regurgitation with or without heartburn while on proton-pump inhibitor therapy.

Treatments for diseases in other therapeutic areas

XAGRID for the treatment of essential thrombocythaemia in Japan

A Phase 3 clinical program has been initiated in Japan to assess the safety and efficacy of XAGRID in adult essential thrombocythaemia patients treated with cytoreductive therapy who have become intolerant to their current therapy or whose platelet counts have not been reduced to an acceptable level.

SPD - 602 iron chelating agent for the treatment of iron overload secondary to chronic transfusion

SPD - 602 was acquired as part of the acquisition of FerroKin. A Phase 2 trial in pediatric patients with transfusional iron overload is ongoing and a second study in adults has been initiated. This product has received orphan drug designation by the EMA and the FDA for the treatment of chronic iron overload requiring chelation therapy.

Projects in pre-clinical development

A number of additional projects are underway in various stages of pre-clinical development for the SP business.

Development projects discontinued or de-prioritized in the year to December 31, 2012

The Company has discontinued or de-prioritized the following development projects during the year to December 31, 2012:

LIALDA/MEZAVANT for the treatment of diverticulitis.

LDX (currently marketed as VYVANSE in the US for the treatment of ADHD) for the treatment of Excessive Daytime Sleepiness (“EDS”).

SPD - 535 for the treatment of improvement in potency of arteriovenous access in hemodialysis patients.

SPD - 554 for the treatment of ADHD.

HUMAN GENETIC THERAPIES

FIRAZYR for the treatment for Acute Angiotensin Converting Enzyme Inhibitor-Induced Angioedema ( ACE-I AE)

In December 2012, Shire submitted a supplemental Marketing Authorization Application (“MAA”), to the European Medicines Agency (“EMA”) seeking approval for FIRAZYR for the treatment of ACE-I AE in Europe. Depending upon the outcome of discussions with the FDA about appropriate development pathways for FIRAZYR as a possible ACE-I AE treatment option, Phase 3 studies for the US market could begin in 2013.

HGT- 4510 for DMD

HGT- 4510 (also referred to as ACE-031) was added to the Shire HGT portfolio in 2010 through an exclusive license in markets outside of North America for the activin receptor type IIB (“ActRIIB”) class of molecules being developed by Acceleron. The lead ActRIIB drug candidate, HGT-4510 is in development for the treatment of patients with DMD. The Phase 2a trial is on clinical hold. This product has been granted orphan designation in the US and the EU.

HGT- 2310 for the treatment of Hunter syndrome with CNS symptoms

HGT- 2310 is in development as an enzyme replacement therapy (“ERT”) delivered intrathecally for Hunter syndrome patients with CNS symptoms. The Company initiated a Phase 1/2 clinical trial in the first quarter of 2010 which has now completed. The top line results of this trial indicate that HGT- 2310 appears to be well tolerated at all three doses studied during the timeframe of the trial. Furthermore, dose-dependent drug activity in vivo was evidenced by a decline in glycosaminoglycan (“GAG”) levels in cerebrospinal fluid following treatment, a biomarker of metabolic activity. Full results from this trial will be presented at the American College of Medical Genetics (“ACMG”) meeting in March 2013. Shire is currently planning a pivotal clinical trial which is expected to initiate in the second half of 2013, subject to customary regulatory interactions with the FDA and EMA. This product has been granted orphan designation in the US.

HGT- 1410 for Sanfilippo A Syndrome (Mucopolysaccharidosis IIIA)

HGT- 1410 is in development as an ERT delivered intrathecally for the treatment of Sanfilippo A Syndrome, a LSD. The Company initiated a Phase 1/2 clinical trial in August 2010 which has now completed. The top line results of this trial indicate that HGT- 1410 appears to be safe and well tolerated at all three doses studied during the timeframe of the trial. Furthermore, dose-dependent drug activity in vivo was evidenced by a decline in GAG levels in cerebrospinal fluid following treatment. Full results from this trial will be presented at the ACMG meeting in March 2013. Shire is currently planning the next clinical trial for HGT- 1410, designed to measure a clinical response, which is expected to initiate in the

second half of 2013, subject to customary regulatory interactions with the FDA and EMA. The product has been granted orphan drug designation in the US and in the EU.

HGT- 1110 for the treatment of Metachromatic Leukodystrophy

HGT-1110 is in development as an ERT delivered intrathecally for the treatment of MLD. This product has been granted orphan drug designation in the US and the EU. The Company initiated a Phase 1/2 clinical trial in August 2012. This trial is ongoing.

Projects in pre-clinical development and research

A number of additional pre-clinical and early stage research projects are also underway for the HGT business, including projects in Sanfilippo B syndrome and IgA nephropathy.

REGENERATIVE MEDICINE

ABH001– for the treatment of Epidermolysis Bullosa

ABH001 is in development for the treatment of EB, a rare genetic skin disease that causes the skin to be so fragile that the slightest friction results in painful blisters and open wounds. The company initiated a phase 3 study in the fourth quarter of 2012. The FDA has granted Fast Track designation for this program.

SRM - 003 (formerly referred to as VASCUGEL) for the treatment of improvement in patency of arteriovenous (“AV”) access in hemodialysis patients

SRM - 003 is a novel endothelial cell based therapy in development for enhancing blood vessel repair and improving hemodialysis access for patients with end-stage renal disease (“ESRD”). This product has been granted orphan drug designation in the US and the EU. The Company has commenced work on two Phase 2 clinical trials and is targeting recruitment to begin in 2013.

Development projects discontinued or de-prioritized in the year to December 31, 2012

DERMAGRAFT – for the treatment of Venous Leg Ulcers

On August 24, 2011 Shire announced its preliminary analysis of the top-line results from the Phase 3 pivotal trial of DERMAGRAFT in subjects with VLU conducted by Advanced BioHealing, Inc. (“ABH”). The international pivotal trial was designed as a prospective, multicenter, randomized, controlled clinical study to assess the product’s safety and efficacy in the promotion of healing VLU. The preliminary analysis of the data was that the trial did not meet the primary endpoint mutually agreed with the FDA and EMA and a subsequent detailed analysis of the data set has confirmed this finding. Shire has discontinued this trial and has made no decision as to whether to conduct further studies in VLU for DERMAGRAFT.

Manufacturing and distribution

Active pharmaceutical ingredient (“API”) sourcing

The Company sources API from third party suppliers for its SP products and its HGT product FIRAZYR. Shire has manufacturing capability for agalsidase alfa, idursulfase and velaglucerase alfa at its protein manufacturing plants in Cambridge and Lexington, Massachusetts, US for its HGT products, REPLAGAL, ELAPRASE and VPRIV, respectively and manufacturing capability for its RM product DERMAGRAFT at its manufacturing facility in La Jolla, California, US.

The Company currently has dual sources of API for VYVANSE, ADDERALL XR, LIALDA and PENTASA and is developing a second source for INTUNIV. The Company manages the risks associated with reliance on single sources of API by carrying additional inventories or developing second sources of supply.

In order to support the rapid growth of VPRIV and REPLAGAL, as well as to support clinical development, additional manufacturing capacity has been added in Lexington, Massachusetts, US. The facility has been approved for the purification of REPLAGAL API, and in November 2011 the Company submitted regulatory filings with both the EMA and the FDA for the production of VPRIV API at the new facility. On February 21, 2012 the EMA’s Committee for Medicinal Products for Human Use approved the production of VPRIV in this facility and this decision was adopted by the European Commission on March 26, 2012.

In first quarter of 2012, Shire received a Complete Response letter from the FDA regarding production of VPRIV drug substance at Lexington. In October 2012 Shire submitted its response to the matters raised in the Complete Response Letter, and continues to work closely with the FDA towards a satisfactory resolution.

Notwithstanding the ongoing discussions with the FDA, Shire continues to supply VPRIV to US patients through its existing approved US manufacturing facilities and has the capacity to meet the anticipated demand for VPRIV from current and new patients both in the US and globally.

DERMAGRAFT is grown from a cryopreserved master cell bank that was procured from a single neonatal foreskin sourced in 1990. The cell line has been qualified by the FDA and the Company performs extensive testing to help ensure the safety of the fibroblast cells in the master cell bank. In the second quarter of 2012, the Company announced plans to develop a Regenerative Medicine campus in San Diego, which will provide flexibility and increased capacity to develop and manufacture new regenerative medicine therapies.

Finished Product Manufacturing

The Company sources all of its SP products from third party contract manufacturers. HGT finished products 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 (in most markets) and VYVANSE and is developing a second source for the finished product manufacturing of LIALDA. The Company sources finished product for ADDERALL XR, FIRAZYR, FOSRENOL, INTUNIV, PENTASA, RESOLOR and VPRIV (in some markets) from a single contract manufacturer for each product. The Company manages the risks associated with reliance on single sources of production by carrying additional inventories.

The Company currently utilizes numerous third-party suppliers for the raw materials used in the manufacturing of DERMAGRAFT. The Company currently obtains certain serum reagents, the mesh framework and the manifold used in the manufacture of DERMAGRAFT from single suppliers. The Company manages the risks associated with reliance on single sources by carrying additional inventories and, where appropriate, entering into contractual supply agreements with a bulk order provision.

During 2009, following a comprehensive evaluation of its operations and strategic focus, Shire decided to phase out operations at its SP manufacturing facility at Owings Mills, Maryland. This phase out was successfully completed during 2011.

Distribution

The Company’s US distribution center for SP products, which includes a large vault to house US Drug Enforcement Administration (“DEA”) regulated Schedule II products, is located in Kentucky. From there, the Company primarily distributes its products through the three major wholesalers who have hub or distribution centers that stock Schedule II drugs in the US, providing access to nearly all pharmacies in the US.

The distribution and warehousing of HGT products for the US market is contracted out to specialist third party contractors.

The Company ships DERMAGRAFT from its La Jolla, California facility using third-party carriers that are experienced in cold-chain logistics as well as from a third-party carrier and distributor’s site located in Louisville, Kentucky, from which the Company ships the majority of DERMAGRAFT intended for customers located in the Eastern part of the US.

Outside of the US, physical distribution of SP and HGT 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).

Material customers

The Company’s three largest trade customers are Cardinal Health, Inc., McKesson Corp, and AmerisourceBergen which are based in the US. In 2012, these wholesale customers accounted for approximately 24%, 19% 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, unpatented know-how, technological innovations and contractual arrangements with third parties to maintain and enhance its competitive position where it is unable to obtain patent protection or where marketed products are not covered by specific patents. 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 US, 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. The markets for some of the potential products for rare genetic diseases caused by protein deficiencies are small, and, where possible, the Company has sought orphan drug designation for products directed to these markets, (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 ongoing litigation are provided in ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements.

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.

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 non-exhaustive list sets forth details of granted US and EP patents pertaining to the Company’s material products and certain products from which the Company receives a royalty, which are owned by or licensed to the Company and that are important to an understanding of the Company’s business taken as a whole. The listed EP patents do not necessarily have a corresponding national patent registered in each EU member state and the rights granted pursuant to an EP patent are enforceable only in the EU member state where the EP patent has been registered as a national patent. The expiration dates set forth below do not necessarily reflect changes to the patent term afforded by Patent Term Extensions in the United States, nor supplementary protection certificates (“SPCs”) which are available in many EU member states. The Company also holds patents in other jurisdictions, such as Canada and Japan and has patent applications pending in such jurisdictions, as well as in the US and the EU.

	Granted US and EP Patents	Expiration Date

ADDERALL XR	US 6,322,819 US RE 41148 US 6,605,300 US RE 42096 US 6,913,768 EP 1123087 EP 1542660	October 21, 2018 October 18, 2018 October 18, 2018 October 21, 2018 May 24, 2023 October 21, 2019 September 24, 2023
ELAPRASE	US 5,728,381 US 5,798,239 US 5,932,211	March 17, 2015 August 25, 2015 September 3, 2019
FIRAZYR	US 5,648,333	July 15, 2014

FOSRENOL	US 5,968,976 US 7,381,428 US 7,465,465 EP 0817639	October 26, 2018 August 26, 2024 August 26, 2024 March 19, 2016
INTUNIV	US 6,287,599 US 6,811,794	December 20, 2020 July 4, 2022
LIALDA/MEZAVANT	US 6,773,720 EP 1198226 EP 1183014 EP 1287822	June 8, 2020 June 8, 2020 June 9, 2020 June 8, 2020
REPLAGAL	US 5,733,761 US 6,083,725 US 6,395,884 US 6,458,574 EP 0935651 EP 2186902	March 31, 2015 September 12, 2017 September 12, 2017 September 12, 2017 September 12, 2017 March 9, 2020
RESOLOR	EP 807110	November 16, 2015
VPRIV	US 5,641,670 US 5,733,761 US 6,270,989 US 6,566,099 US 7,138,262 US 7,833,766 EP 0672160 EP 1986612	June 24, 2014 June 24, 2014 June 24, 2014 September 12, 2017 August 18, 2020 February 6, 2027 December 2, 2013 February 7, 2027

VYVANSE	US 7,105,486 US 7,223,735 US 7,655,630 US 7,659,253 US 7,659,254 US 7,662,787 US 7,671,030 US 7,671,031 US 7,674,774 US 7,678,770 US 7,678,771 US 7,687,466 US 7,687,467 US 7,700,561 US 7,718,619 US 7,723,305 US 7,662,788 US 7,713,936 EP 1644019	February 24, 2023 February 24, 2023 February 24, 2023 February 24, 2023 February 24, 2023 February 24, 2023 February 24, 2023 February 28, 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 June 1, 2024
LAMIVUDINE: EPIVIR/EPIVIR-ZEFFIX/3TC	US 5,693,787 US 5,663,320 US 5,696,254 US 6,180,639 RE 39155	December 2, 2014 September 2, 2014 December 9, 2014 July 30, 2018 January 2, 2014

Competition

Shire believes that competition in its markets is based on, among other things, product safety, efficacy, convenience of dosing, reliability, availability and price. Companies with more resources and larger R&D expenditures than Shire have a greater ability to acquire assets as well as fund the research and clinical trials necessary for regulatory applications, and consequently may have a better chance of obtaining approval of drugs that would then compete with Shire’s products. 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. The market share data provided below is sourced from IMS Health.

ADHD market

Competition in the US ADHD market has increased with the launch of competing products in recent years, including authorized generic versions of CONCERTA and RITALIN LA, authorized generic and generic ADDERALL XR, KAPVAY (twice daily, clonidine extended release) and in late 2012 the FDA approval of QUILLIVANT, a liquid methylphindate from Next Wave Pharmaceuticals, Inc., now part of Pfizer, Inc. Shire’s share of the US ADHD prescription market in December 2012 was 26.6% (compared to 27.9% in December 2011). Overall the US ADHD prescription market grew by 9.0% in the year to December 31, 2012 (compared to 10.4% in the same period in 2011).

Shire’s key ADHD market is the US, with the Company having three products for the treatment of ADHD (VYVANSE, ADDERALL XR and INTUNIV). Shire also has ADHD products in Canada, Brazil, Mexico, South Korea and selected EU markets and further geographic expansion plans are underway, including a collaboration agreement with Shionogi to co-develop and sell ADHD products in Japan.

Key branded competitors in the US are stimulants CONCERTA and FOCALIN XR, and non-stimulants STRATTERA and KAPVAY. Generic immediate release stimulants which constitute 29.8% of the ADHD market (IMS NPA, December 2012) are showing strong growth in the US ADHD market, growing 20.2% in the year from December 31, 2011 to December 31, 2012.

Key competitors in the European ADHD market are CONCERTA (Janssen-Cilag), RITALIN LA (Novartis), MEDIKINET (Medice and distributors) and STRATTERA (Eli Lilly), depending upon the country. In European countries where Shire expects to launch ELVANSE in 2013 (known as TYVENSE in Ireland), the ADHD market size was $363 million (MAT Q3 2012), with annual growth of over 8% compared to the same period in 2011.

The Company is also aware of several clinical development programs underway by other pharmaceutical companies. Eli Lilly and Company Limited, Targacept, Otsuka Pharmaceutical Co., Ltd., Purdue, Alcobra (in collaboration with Teva), Theravance, Euthymics, Neuroderm, Durect Pharma and Supernus are seeking to develop additional treatment options for ADHD.

Ulcerative Colitis (UC) market

UC is a type of inflammatory bowel disease. The first-line treatments for patients with mild to moderate UC are formulations containing mesalamine (also known as 5-ASA). Shire defines the 5-ASA competitive set as the non-sulfasalazine, oral mesalamine and mesalamine pro-drug products.

Competitors vary across markets. Principal competitors in major markets include ASACOL and ASACOL HD/ASACOL 800 (Warner Chilcott, Tillots, various other licensees), APRISO (Salix), PENTASA (Ferring Pharmaceuticals, outside of the US only), SALOFALK (Dr. Falk) and CLAVERSAL (Faes Farma, Recordati S.p.A).

5-ASA products are generally protected by formulation patents only. In December 2007, several generic versions of Salix’s COLAZAL (balsalazide) entered the US market, but no other generic versions of products in the 5-ASA competitive set have been introduced to the US market since that time. Generic mesalamine products are available in several European markets, but are not significant competitors in those markets. UCERIS (budesonide) was approved by the FDA in January 2013 and represents an alternative to 5-ASA products for acute treatment (up to 8 weeks) of mild to moderate UC.

The Company is aware of other 5-ASA and non-ASA biologic treatments in development for UC.

Chronic constipation market

In Europe, over-the-counter and prescription laxatives are the current first line therapy for chronic constipation. The highest value laxative (by revenue) is MOVICOL, a polyethylene glycol (“PEG”) 3350, sold by Norgine. In Europe, RESOLOR is indicated for symptomatic treatment of chronic constipation in women in whom laxatives fail to provide adequate relief and currently there are no other products available in the EU with the same indication.

Guanylate cyclase-C agonist, CONSTELLA (Almirall S.A., Ironwood Pharmaceuticals Inc.), was approved by the EMA for the treatment of moderate to severe irritable bowel syndrome with constipation (IBS-C) in November 2012. AMITIZA

(Sucampo Pharmaceuticals, Inc.), a chloride channel antagonist, received United Kingdom approval for the treatment of chronic idiopathic constipation in September 2012.

The Company is aware of other therapies for the treatment of chronic constipation and IBS-C being developed.

Markets for the treatment of rare genetic diseases

REPLAGAL competes with Genzyme’s FABRAZYME in markets outside the US. Shire is aware of the early stage development of certain compounds to treat Fabry disease by Genzyme, Protalix, JCR Pharmaceuticals Co. Ltd, and Isu-Abxis.

VPRIV competes with Genzyme’s CEREZYME, Actelion’s ZAVESCA and Protalix’s ELELYSO (which was refused registration in the EU and is marketed by Pfizer outside of Israel). Genzyme also has a small molecule therapy in Phase 3 development for the treatment of Gaucher disease. Shire is also aware of four companies that have early stage biosimilar development programs for Gaucher disease: JCR; Isu-Abxis; Harvest Moon; and Dong A Pharmaceuticals.

ELAPRASE is the only product licensed to treat Hunter syndrome in all the markets in which it is registered except South Korea. In 2012, Korean Green Cross Corporation was granted approval in South Korea for HUNTERASE, an ERT to treat Hunter Syndrome. Shire is also aware that JCR is in early stage development of an ERT for the treatment of Hunter syndrome.

FIRAZYR competes in Europe with CSL Behring’s BERINERT P, Pharming Group N.V.’s RUCONEST and ViroPharma’s CINRYZE. FIRAZYR competes in the US with BERINERT and with Dyax Corporation’s KALBITOR. ViroPharma’s CINRYZE is approved in the US only for prophylaxis of HAE attacks.

Regenerative Medicine

The medical device and biotechnology industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. Competition in the RM industry is particularly intense, due largely to the fact that RM products currently compete with both traditional and advanced products, as well as bio-engineered products. DERMAGRAFT competes with other products based on efficacy, price, reimbursement, ease of use and healthcare provider education.

DERMAGRAFT competes in the US against numerous other products, such as Organogenesis’s APLIGRAF, Smith and Nephew’s REGRANEX, MiMedx’s EPIFIX, Smith and Nephew’s OASIS Matrix products, Soluble System’s THERASKIN, KCI’s GRAFT JACKET, ACeLL’s MATRISTEM and Integra Life Science’s INTEGRA. In addition, DERMAGRAFT competes against advanced mechanical technologies, and advanced wound care products such as collagen-based dressings like Systagenix’s PROMOGRAN PRISMA, negative pressure wound therapy and hyperbaric oxygen. Negative pressure wound therapy uses a vacuum to remove excess fluid and cellular waste that create inflammation and hinder ulcer healing. Current competitors include KCI’s V.A.C. therapy and Smith & Nephew’s RENASYS.

HIV Market

The HIV competitive landscape is becoming more crowded and complicated as treatment trends evolve. The Company’s 3TC/lamivudine/EPIVIR products (all licensed to GSK) are part of the Nucleoside/Nucleotide Reverse Transcriptase Inhibitors (“NRTI”) market. TRIZIVIR, COMBIVIR and EPZICOM/KIVEXA (combination products including 3TC and other drugs) are part of the combined NRTI market. TRUVADA (tenofovir/emtricitabine), sold by Gilead, is the market leader in combination NRTI. In addition to the two NRTI HIV markets in which lamivudine is sold, there is competition from NRTIs, PIs and entry inhibitors.

TRUVADA and ATRIPLA (efavirenz/emtricitabine/tenofovir), a cross-class fixed dose combination also sold by Gilead, both represent the most direct competition to lamivudine.

Several generic drug companies have filed ANDAs, seeking approval for generic versions of EPIVIR, COMBIVIR, and EPZICOM in the US and several tentative approvals of generic lamivudine have been issued by the FDA. In December 2011, the FDA approved generic versions of EPIVIR that are manufactured by Aurobindo and Apotex.

Government regulation

The clinical development, manufacturing and marketing of Shire’s products is subject to governmental regulation in the US, the EU and other territories. The Federal Food, Drug, and Cosmetic Act, the Prescription Drug Marketing Act and the Public Health Service Act in the US, and 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.

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 US. 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. As a condition of approval, the regulatory agency will require post-marketing surveillance to monitor for adverse effects, and may require other additional studies as it deems appropriate. 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 labeling 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 labeling (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 US, 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 US. These laws are particularly pertinent to Shire’s HGT business unit.

In the US, the Drug Price Competition and Patent Restoration Term Act of 1984, known as the US 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 3-5 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 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.

In the US, the DEA also 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 (VYVANSE 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 also subject to various US 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, 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 also require a Company to repair, replace or refund the cost of products that the Company manufactured or distributed. Outside the US, 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 payors for the elderly and poor in the US, 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 Patient Protection and Affordable Care Act (“PPACA” or “ACA”).

Regulatory Developments

In the US 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 and increases in required rebates or discounts. Similar issues 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 level in the US that could allow patient access to drugs approved in other countries – most notably Canada. This is generally referred to as drug re-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.

Similar regulatory and legislative issues 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.

Third party reimbursement and pricing

General. 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 payors are increasingly 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.

Commercial Managed Care. Commercial payors 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 reduce product usage in the payor’s patient population. Overall drug usage could increase due to the expansion of covered lives under the PPACA 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 the poor in the US. 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. Other states manage their own formulary and require manufacturers to pay additional “state supplemental” rebates for positioning on its preferred drug list.

The PPACA has expanded eligibility for Medicaid and that is predicted to increase membership in the program by approximately 16 to 18 million new lives. However, it is not possible to predict the overall increases in Medicaid and Managed Medicaid business and the cost for Shire specifically. The US Supreme Court has left it up to the individual choice of each state, as to whether to adopt the ACA’s Medicaid expansion or not.

“Dual-eligibles” are those individuals that qualify for both Medicare and Medicaid. Although Centers for Medicare and Medicaid Services’ (“CMS”) has recently placed dual-eligibles under the coverage of Medicare Part D, there are several initiatives aimed at moving these individuals back under Medicaid, where their drug utilization would again be subjected to full Medicaid rebates.

The industry awaits finalization of the CMS proposed interpretation of Medicaid rebate increases related to product line extensions under the ACA. Depending on the guidelines, Shire’s Medicaid rebates could increase. CMS’ issuance of new Average Manufacturer’s Price (“AMP”) rules could also increase Medicaid rebate costs. CMS’ proposed expansion of the Medicaid rebate program to US Territories (including Puerto Rico, US 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 costs. CMS’ publication of its own pricing compendium, (“NADAC”), could affect reimbursement to pharmacists for drugs, depending on the rate of each state’s adoption. The tax revenue aspects of the fiscal cliff in the Budget Control Act were partially resolved via the Taxpayers Relief Act of 2012; however, the spending cuts to government programs like Medicare, Medicaid and others have not been finalized, and could affect government payor utilization of Shire’s products.

In the EU, price controls and non-reimbursement 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, but assess the patient relative benefit of new drugs within three months of commercialization, in order to inform subsequent price negotiations. Prices of drugs bringing added value will qualify for price negotiation, while those with no added value will be subject to reference pricing (where price is determined by taking the lowest and/or average price of similar medicines in other countries). Criteria required to prove a drug’s benefit include "additional patient-related outcomes". Third party reimbursement limits may reduce the demand for the Company’s products. The slow pace of the price applications process in some countries have delayed and, occasionally, prevented launches of a Company’s products. In some countries regional authorities are seeking to constrain drug prices and uptake. As such the Company’s estimated product launches may be delayed. The novelty of ADHD and behavioral drugs in the EU and other markets will require strong education and promotion efforts in order to gain acceptance and an appropriate reimbursement profile.

Responsibility

Corporate responsibility (“Responsibility”) is embedded at Shire and is a clear expectation of all employees. Individual performance reviews include an evaluation of how goals were achieved, not just that they were achieved. Responsibility is also reflected in how Shire operates as a “corporate citizen.” This commitment to responsibility is supported by our Board of Directors, championed by the Chief Executive and driven forward by Shire’s senior leaders.

During 2012 Shire reviewed its governance approach. In consultation with external stakeholders, the Company identified the importance of two primary areas of Responsibility – Access to Medicines and Disease Awareness. As a result, Shire established dedicated working groups in both these areas formed of senior leaders from across its three businesses. In addition, Shire has a dozen senior manager “sponsors” who champion focus areas such as the environment, health and safety, compliance and risk management, our people and the community. These sponsors are responsible for setting goals which support Shire’s overall strategy, and for ensuring progress is made against these goals. Responsibility objectives are reviewed quarterly, and Sponsors meet as a group at least once a year to discuss and monitor progress. This year Shire established a new Responsibility Steering and Communications Group which facilitates the working groups, sponsors and communications.

Shire communicates regularly to employees about Responsibility. The Company also communicates to external stakeholders with a bi-annual publication (Responsibility Matters) and has a section on its website dedicated to information and ongoing updates on Shire’s work, initiatives and achievements that illustrate Shire’s commitment to Responsibility.

Employees

In the pharmaceutical industry, the Company’s employees are vital to its success. At December 31, 2012 the Company had 5,367 employees (2011: 5,251 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 XBRL (Extensible Business Reporting Language) format. XBRL is an electronic coding language to create an interactive financial statement data over the internet. 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 has adopted a risk management strategy designed to identify, assess and manage the significant risks that it faces. While the Company aims to identify and manage such risks, no risk management strategy can provide absolute assurance against any losses.

Set out below are the key risk factors associated with the business that have been identified through the Company's approach to risk management. Some of these risk factors are specific to the Company, and others are more generally applicable to the pharmaceutical industry or specific markets in which the Company operates. The Company believes that these risk factors apply equally and therefore all should be carefully considered before any investment is made in Shire.

RISK FACTORS RELATED TO THE COMPANY’S BUSINESS

The Company’s products may not be a commercial success

The commercial success of the Company’s marketed products and other new products that the Company may launch in the future, will depend on their approval and acceptance by physicians, patients and other key decision-makers, as well as the receipt of marketing approvals in different countries and the time taken to obtain them, the scope of marketing approvals as reflected in the product’s label, 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 suffer forced reductions or if prices of competitor products are reduced significantly;

if there are unanticipated adverse events experienced with the Company’s products or those of a competitor’s product not seen in clinical trials that impact the physician’s 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 or if regulatory agencies in one country act in a way that raises concerns for regulatory agencies or for prescribers or patients in another country;

if patients, payors or physicians favor other treatments over the Company’s products;

if the Company’s products are subject to more stringent government regulation than competitor products;

loss of patent protection or other forms of exclusivity, or the ability of competitors to challenge or circumvent patents or other forms of exclusivity (See ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K for details of current litigation);

if planned geographical expansion into new markets is not successful;

if the sizes of the patient populations for the Company’s products are less than expected; or

if there are lawsuits filed against Shire, including but not limited to, product liability claims, consumer law claims, and payor or reimbursement litigation.

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.

Revenues from ADDERALL XR are subject to generic erosion

During 2012 the FDA clarified the regulatory pathway required for approval of generic versions of ADDERALL XR. Consequently in June 2012 and February 2013, Actavis and Teva, respectively, received approval to launch their own generic versions of ADDERALL XR. Shire currently sells authorized generic versions of ADDERALL XR to Teva and Impax and also continues to sell the branded version of ADDERALL XR.

Revenues from ADDERALL XR have declined as a result of these developments and could decline further if:

generic or authorized generic versions of ADDERALL XR capture more of Shire’s branded market share;

the FDA approves additional ANDAs for generic versions of ADDERALL XR which could further reduce branded market share;

the production of ADDERALL XR is disrupted by difficulties in obtaining a sufficient supply of amphetamine salts including, but not limited to, an inability to obtain sufficient quota from the DEA;

there are changes in reimbursement policies of third-party payors; or

there are changes to the level of sales deductions for ADDERALL XR for private or public payors.

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

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

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

higher levels of controls on the use of the Company’s products and/or requirements for additional price concessions 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; or

price controls, unsuccessful government tenders, or non-reimbursement of new medicines or new indications for which the health economic (i.e. cost/benefit) rationales are not well established.

The cost of treatment for some of the Company's products is high, in particular REPLAGAL, ELAPRASE and VPRIV which are used for the treatment of certain rare genetic diseases. The Company may encounter difficulty in obtaining or maintaining satisfactory pricing and reimbursement for such products. The failure to obtain and maintain pricing and reimbursement at satisfactory levels for its products may adversely affect the Company’s revenues, financial condition or results of operations.

The Company relies on a single source for manufacture of certain of its products. A disruption to the supply chain for these 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

The Company sources some products from third party contract manufacturers, and for certain products has its own manufacturing capability. Although the Company dual-sources certain key products and/or active ingredients, the Company currently relies on a single source for production of the final drug product for each of ADDERALL XR, FIRAZYR, FOSRENOL, INTUNIV, LIALDA, PENTASA, RESOLOR and VPRIV (in the US), relies on a single active ingredient source for each of ELAPRASE, FIRAZYR, FOSRENOL, INTUNIV, REPLAGAL, RESOLOR and VPRIV (in the US) and relies on a single source for certain serum reagents, the mesh framework and the manifold used in the manufacture of DERMAGRAFT.

The Company uses third party manufacturers to manufacture many of its products and is reliant upon third party contractors for certain goods and services. Any inability of these third party manufacturers to manufacture products, or any failure of these third party contractors to provide these goods and services, in each case in accordance with its respective contractual obligations, could adversely affect the Company’s ability to manage its manufacturing processes or to operate its business

The Company may experience supply failures or delays beyond its control if any of its third party manufacturers do not supply the Company on time with the required volumes, or supply products that do not meet regulatory requirements. Any such third party supply failures could lead to significant delays, increase 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.

The Company has also entered into many agreements with third parties for the provision of goods and services to enable it to operate its business. If the third party does not provide the goods or services on the agreed basis and within the specified timeframe, the Company may not be able to continue the development or commercialization of its products as planned or on a commercial basis.

The development, approval and manufacturing of the Company’s products is subject to extensive oversight by various regulatory agencies

Pharmaceutical and device manufacturing sites must be inspected and approved by regulatory agencies such as the FDA. Active ingredients, excipients and packaging materials used in the manufacturing process must be obtained from sources approved by regulatory agencies.

The development and approval of the Company's products depends on the ability to procure ingredients and packaging materials from approved sources and for the manufacturing process to be conducted at approved sites. Changes of manufacturer or changes of source of ingredients or packaging materials must generally be approved by the regulatory agencies, which will involve testing and additional inspections to ensure compliance with the applicable regulatory agency’s regulations and standards. The need to qualify a new manufacturer or source of ingredients or packaging materials can take a significant amount of time. Should it become necessary to change a manufacturer or supplier of ingredients or packaging materials, or to qualify an additional supplier, the Company may not be able do so quickly which could delay the manufacturing process.

US-based manufacturers must be registered with the DEA and similar regulatory authorities if they handle controlled substances. Certain of the Company’s products, including ADDERALL XR and VYVANSE, contain ingredients which are controlled substances subject to quotas managed by the DEA. As a result, the Company’s procurement and production quotas may not be sufficient to meet commercial demand.

The Company manufactures VPRIV, ELAPRASE, REPLAGAL, and DERMAGRAFT using complex biological processes. The complexity of the manufacturing results in a number of risks, including the risk of viral or other contamination.

Regulatory approvals or interventions associated with changes to manufacturing sites, ingredients or manufacturing processes could lead to significant delays, increase 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 and results of operations.

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 impact 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 US and Europe. In 2012, for example, 50% of the Company's product sales were attributable to three customers in the US: McKesson Corp., Cardinal Health, Inc and AmerisourceBergen Corp. 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 could 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 genetic diseases are concentrated with a small number of customers. Changes in the buying patterns of those customers may have an adverse effect on the Company's revenues, financial condition or results of operations.

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

The 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 operations of market participants, such as the Company, are closely supervised by regulatory authorities and law enforcement agencies, including the US Department of HHS, the FDA, the US Department of Justice, the SEC and the DEA. These authorities and agencies and their equivalents in countries outside the US have broad authority to investigate market participants for potential violations of federal laws relating to the marketing and promotion of pharmaceutical products and medical devices, including the False Claims Act, the Anti-Kickback Statute 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 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 subject to certain ongoing investigations by governmental agencies. For further information, see ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K).

Adverse outcomes in legal matters and other disputes 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, employment claims and disputes, intellectual property claims and disputes, contract claims and disputes, product liability claims and disputes, regulatory litigation and tax 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 profitability of existing products, subject the Company to significant defence costs, fines, penalties, audit findings and injunctive or administrative remedies, distract management to the detriment of the business, result in the exclusion of certain products, or the Company, from government reimbursement programs or subject the Company to regulatory controls or government monitoring of its activities in the future. Any such outcomes could have a material adverse effect on the Company’s revenue, financial condition or results of operations. (For further information see ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K).

GENERAL RISK FACTORS RELATED TO THE COMPANY AND TO THE HEALTHCARE INDUSTRY

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

The healthcare industry is heavily regulated. Changes to laws or regulations impacting the healthcare industry, in any country in which the Company conducts its business, may adversely impact the Company's revenues, financial condition or results of operations. For example, changes to the regulations relating to the exclusivity periods available for the Company’s products may allow for the earlier entry of generic or biosimilar competitor products.

A slowdown of global economic growth, or continued instability of the Eurozone, 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 also reduce the level of reimbursement that governments 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.

Any slowing economic environment may also lead to financial difficulties for some of the Company’s significant customers. In such situations, the Company could experience delays in payment or non-payment of amounts owed which may result in a rising level of contractual defaults by its contractual counterparties.

The Company does business, both directly (with government hospitals, clinics, pharmacies and other agencies) and indirectly (through wholesalers and distributors), with a number of Eurozone governments, including the governments of Greece, Ireland, Italy, Portugal and Spain. These and other countries have experienced, and may continue to experience, declines in their creditworthiness. These events could in turn result in these countries making significant cuts to their public spending, including national healthcare budgets, in an attempt to manage their budget deficits, or could result in a greater risk of default or non-payment of outstanding payment obligations, any of which could adversely affect the Company’s revenues, financial condition or results of operations.

In addition, there are concerns for the overall stability and suitability of the Euro as a single currency, given the economic and political challenges facing individual Eurozone countries. Continuing deterioration in the creditworthiness of Eurozone countries, the withdrawal of one or more member countries from the EU, or the failure of the Euro as a common European currency could adversely effect the Company’s revenues, financial condition or results of operations. (For further information see ITEM 7A: Quantitative and qualitative disclosures about market risk, concentration of credit risk set forth in this Annual Report on Form 10-K).

The introduction of new products by competitors may impact future revenues

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

The pharmaceutical, biotechnology and device industries are also characterized by continuous product development and technological change. The Company's products could, therefore, be rendered obsolete or uneconomic, through the development of new products, new methods of treatment, or technological advances in manufacturing or production by its competitors which may impact future revenues.

The successful development of products is highly uncertain and requires significant expenditures and time

Products that appear promising in research or development may be delayed or fail to reach later stages of development as:

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

delays may be caused by slow enrolment 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; delays at regulatory agencies due to staffing or resource limitations; analysis of or changes to study design; unexpected safety, efficacy, or manufacturing issues; delays may arise from shared control with collaborative partners in the planning and execution of the product development, scaling of the manufacturing process, or getting approval for manufacturing;

manufacturing issues, pricing 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

the product may fail to receive necessary regulatory approvals.

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. If the Company’s large-scale or late-stage clinical trials for a product are not successful, the Company will not recover its substantial investments in that product.

In addition, even if the products receive regulatory approval, they remain subject to ongoing regulatory requirements, including, for example, obligations to conduct additional clinical trials or other non-clinical testing, changes to the product

label (which could impact its marketability and prospects for commercial success), new or revised requirements for manufacturing, written notifications to physicians, or product recalls or withdrawals.

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

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

The failure to secure new products or compounds for development, either through in-licensing, acquisition or internal research and development efforts, or the failure to realize expected benefits from acquisitions of businesses or products, may have an adverse impact on the Company's future results

The Company's future results will depend, to a significant extent, upon its ability to develop, in-license or acquire new products or compounds, or to acquire other businesses. The expected benefits from acquired products, compounds or businesses may not be realized or may require significantly greater resources and expenditure than originally anticipated. The failure to realize expected benefits from acquisitions of businesses or products, or the failure to develop, in-license or acquire new products or compounds on a commercially viable basis, could have a material adverse effect on the Company's revenues, financial condition or results of operations.

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

The Company's success depends upon its ability and the ability of its partners and licensors to protect their intellectual property rights. Where possible, the Company's strategy is to register intellectual property rights, such as patents and trademarks. The Company also relies on various trade secrets, unpatented know-how and technological innovations and contractual arrangements with third parties to maintain its competitive position. The failure to obtain, maintain, enforce or defend such intellectual property rights, for any reason, could allow third parties to make competing products or impact the Company’s ability to develop, manufacture and market its own products on a commercially viable basis, or at all, which could have a material adverse effect on the Company's revenues, financial condition or results of operations.

The Company intends to enforce its patent rights vigorously and believes that its commercial partners, licensors and third party manufacturers intend to enforce vigorously those patent rights they have licensed to the Company. However, the Company’s patent rights, and patent rights that the Company has licensed, may not provide valid patent protection sufficiently broad to prevent any third party from developing, using or commercializing products that are similar or functionally equivalent to the Company's products or technologies. These patent rights may be challenged, revoked, invalidated, infringed or circumvented by third parties. Laws relating to such rights may in future also be changed or withdrawn.

Additionally, the Company's products, or the technologies or processes used to formulate or manufacture those products may now, or in the future, infringe the patent rights of third parties. It is also possible that third parties will obtain patent or other proprietary rights that might be necessary or useful for the development, manufacture or sale of the Company's products. The Company may need to obtain licenses for intellectual property rights from others and may not be able to obtain these licenses on commercially reasonable terms, if at all.

The Company also relies on trade secrets and other un-patented proprietary information, which it generally seeks to protect by confidentiality and nondisclosure agreements with its employees, consultants, advisors and partners. These agreements may not effectively prevent disclosure of confidential information and may not provide the Company with an adequate remedy in the event of unauthorized disclosure. In addition, if the Company's employees, scientific consultants or partners develop inventions or processes that may be applicable to the Company's products under development, such inventions and processes will not necessarily become the Company's property, but may remain the property of those persons or their employers.

The Company has filed applications to register various trademarks for use in connection with its products in various countries and also, with respect to certain products, relies on the trademarks of third parties. These trademarks may not afford adequate protection or the Company or the third parties may not have the financial resources to enforce their rights under these trademarks which may enable others to use the trademarks and dilute their value.

In the regular course of business, the Company is party to litigation or other proceedings relating to intellectual property rights. (See ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K for details of current patent litigation).

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

Loss of highly qualified personnel could cause the Company subsequent financial loss

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

ITEM 1B: Unresolved Staff Comments

None.

ITEM 2: Properties

The following are the principal premises of the Company, as at December 31, 2012:

Location	Use	Approximate Square Footage	Owned or Leased
Dublin, Ireland	Office accommodation	21,500	Leased

Basingstoke, UK	Office accommodation	134,000	Owned and Leased

Wayne, Pennsylvania, US	Office accommodation	420,000	Leased

Florence, Kentucky, US	Warehousing and distribution facility	96,000	Leased

Lexington, Massachusetts, US	Office accommodation, laboratories and manufacturing, warehousing and distribution facility	750,115	Owned

Cambridge, Massachusetts, US	Manufacturing facility/Warehouse	30,072	Leased

Cambridge, Massachusetts, US	Office accommodation	36,779	Leased

North Reading, Massachusetts, US	Warehousing facility	91,676	Leased

Belmont, Massachusetts, US	Warehousing facility	16,000	Leased

La Jolla, California, US	Office accommodation, laboratories and manufacturing, warehousing and distribution facility	74,500	Leased

San Diego, California, US	Office accommodation and warehousing	47,000	Leased

Sao Paulo, Brazil	Office accommodation	19,200	Leased
	Laboratory	7,000	Leased

Berlin, Germany	Office accommodation	25,810	Leased

Nyon, Switzerland	Office accommodation	81,300	Leased

Madrid, Spain	Office accommodation	16,400	Leased

The Company also has other smaller locations in some of the countries listed above and in several other countries around the world. At December 31, 2012 all of the above sites were utilized by the Company. Shire also has a small amount of Lexington laboratory space that it owns but sub-leases.

ITEM 3: Legal Proceedings

The information required by this Item is incorporated herein by reference to Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements listed under ITEM 15: Exhibits and Financial Statement Schedules in this Annual Report on Form 10-K.

ITEM 4: Mine Safety Disclosures

Not applicable.

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 traded 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 to December 31, 2012
1st Quarter		23.00		20.20
2nd Quarter		20.48		17.43
3rd Quarter		20.18		17.95
4th Quarter		19.56		17.27

Year to December 31, 2011
1st Quarter		18.32		15.61
2nd Quarter		19.61		17.91
3rd Quarter		21.36		18.18
4th Quarter		22.43		18.83

The total number of record holders of ordinary shares of Shire on February 15, 2013 was 5,067. Since certain of the ordinary shares are held by broker nominees, the number of record holders may not be representative of the number of beneficial owners.

American Depositary Shares

American Depositary Shares (“ADSs”) 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 15, 2013 the proportion of ordinary shares represented by ADRs was 20.37% 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 to December 31, 2012
1st Quarter		108.20		94.75
2nd Quarter		99.15		82.65
3rd Quarter		95.05		84.24
4th Quarter		94.19		82.45

Year to December 31, 2011
1st Quarter		89.23		72.61
2nd Quarter		96.32		87.92
3rd Quarter		104.00		87.43
4th Quarter		103.90		88.04

The number of record holders of ADSs on February 15, 2012 was 1,528. Since certain of the ADSs are held by broker nominees, the number of record holders may not be representative of the number of beneficial owners.

Share Buy-back Program

In the year to December 31, 2012 the Company, has commenced a share buy-back program of up to $500 million through both direct purchases of ordinary shares and through the purchase of ordinary shares underlying ADRs. The purchases have been made through independent third parties who make trading decisions independently of, and uninfluenced by, the Company. The independence of the third parties enables the Company to continue to purchase ordinary shares (including ordinary shares underlying ADRs) during close periods and other prohibited periods, should they arise. There can be no assurance as to the amount, timing or prices of purchases, which may vary based on market conditions and other factors. The instructions provided to the independent third parties can be cancelled at any time, other than when the Company is in a financial close or other prohibited period. The shares purchased to date are held as treasury shares.

During the year ending December 31, 2012, the Company made on-market repurchases totaling 3,631,571 Ordinary shares at a cost of $106.4 million (excluding transaction costs). This represents 0.65% of the issued share capital of the Company as at the year end. Ordinary Shares purchased may be cancelled or be held as treasury shares, in accordance with the authority renewed by shareholders at the Company’s Annual General Meeting (“AGM”) on April 24, 2012, when the Company was authorized to make market purchases of up to 56,253,208 of its own Ordinary Shares. That authority will expire at the 2013 AGM and in accordance with usual practice a resolution to renew it for another year will be proposed.

The following table provides information about purchases by the Company during the year to December 31, 2012 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act.

Period	Total Number of ordinary shares Purchased		Average Price Paid Per ordinary share (£)		Total Number of ordinary shares underlying ADRs Purchased		Average Price Paid Per ordinary share underlying ADRs ($)		Approximate Dollar Value of ordinary shares that May Yet Be Purchased Under the Share Buy-back Program
October 2012		346,099		17.504		-		-	$490 million
November 2012		1,561,379		17.610		88,500		28.686	$444 million
December 2012		1,169,957		19.061		465,636		30.693	$394 million

Dividend policy

A first interim dividend for the six months to June 30, 2012 of 2.73 US cents (1.74 pence) per ordinary share, equivalent to 8.19 US cents per ADS, was paid in October 2012. The Board has resolved to pay a second interim dividend of 14.60 US cents (9.39 pence) per ordinary share equivalent to 43.80 US cents per ADS for the six months to December 31, 2012.

A first interim dividend for the six months to June 30, 2011 of 2.48 US cents (1.52 pence) per ordinary share, equivalent to 7.44 US cents per ADS, was paid in October 2011. A second interim dividend for the six months to December 31, 2011 of 12.59 US cents (7.96 pence) per ordinary share equivalent to 37.77 US cents per ADS was paid in April 2012.

This is consistent with Shire’s stated policy of paying a dividend semi-annually, set in US cents per ordinary share. Typically, the first interim payment each year will be higher than the previous year’s first interim USD dividend. Dividend growth for the full year will be reviewed by the Board when the second interim dividend is determined.

Income Access Share Arrangements

Pursuant to the Scheme of Arrangement (the “Scheme”) that became effective on May 23, 2008 Shire plc became the holding company of the former holding company of the Shire group, Shire Biopharmaceuticals Holdings (“Old Shire”). As a result of the Scheme, Shire has put in place income access arrangements which enable Shire ordinary shareholders, other than Shire ADS holders, to choose whether they receive their dividends from Shire, 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 (the “IAS Trust”) which is held by the trustee of the IAS Trust (the “Trustee”). The mechanics of the arrangements are as follows:

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 (or are deemed to 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 lower 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 she/he will receive his/her dividends (which would otherwise be payable by Shire plc) under these arrangements from Old Shire.

iv)

An ordinary shareholder who holds 25,000 or fewer ordinary shares at the first record date after she/he first becomes an ordinary shareholder, and who does not make a contrary election, will be deemed to have made an election (pursuant to the Shire plc articles of association) such that she/he will receive his/her dividends under these arrangements from Old Shire.

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, she/he must withdraw his/her ordinary shares from the ADS program prior to the dividend record date set by the Depositary and request delivery of the Shire plc ordinary shares. This will enable him/her to receive dividends from Shire plc (if necessary, by making an election to that effect).

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 (or are deemed to make) an income access share 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 election. If any dividend paid on the income access share and or 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 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 will be 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 Depositary) who have made (or are deemed to have made) an income access share 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.

In the year ended December 31, 2012 Old Shire paid dividends totalling $81.5 million (2011: $67.6 million; 2010: $58.3 million) on the income access share to the Trustee in an amount equal to the dividend ordinary shareholders would have received from Shire plc.

Distributable Reserves

The payment of dividends by Shire plc is governed by Jersey law. Under Jersey law, Shire plc is entitled to make payments of dividends from its accumulated profits and other distributable reserves. 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 debts 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 distributable reserves, its financial condition, the terms of its then existing debt facilities and other relevant factors existing at the time.

For dividends paid by 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.

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 of this Form 10-K.

Performance Graph

For a graph comparing the cumulative total return to the Company’s stockholders during the five years ending December 31, 2012 to that of the London Stock Exchange 100 Index, please refer to ITEM 11: Executive Compensation – Directors’ Remuneration Report.

ITEM 6: Selected financial data

The selected consolidated financial data presented below as at December 31, 2012 and 2011 and for the years to December 31, 2012, 2011 and 2010 were derived from the audited consolidated financial statements of the Company, included herein.

The selected consolidated financial data presented below as at December 31, 2010, 2009 and 2008 and for the years to December 31, 2009 and 2008 were derived from the audited consolidated financial statements of the Company, which are not included herein.

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 the consolidated financial statements and related notes appearing elsewhere in this report.

Year to December 31,	2012			2011			2010			2009			2008
		$’M			$’M			$’M			$’M			$’M
Statements of Operations:
Total revenues		4,681.2			4,263.4			3,471.1			3,007.7			3,022.2
In-process R&D		-			-			-			(1.6	)		(263.1	)
Gain/(loss) on sale of product rights		18.1			(6.0	)		16.5			6.3			20.7
Other operating expenses(1)		(3,750.1	)		(3,148.2	)		(2,693.5	)		(2,392.2	)		(2,367.8	)
Operating income		949.2			1,109.2			794.1			620.2			412.0
Total other (expense)/income, net(2)		(37.8	)		(19.1	)		(24.8	)		22.8			(146.4	)
Income from continuing operations before income taxes and equity in earnings/(losses) of equity method investees		911.4			1,090.1			769.3			643.0			265.6
Income taxes		(167.0	)		(227.6	)		(182.7	)		(138.5	)		(98.0	)
Equity in earnings/(losses) of equity method investees, net of taxes		1.0			2.5			1.4			(0.7	)		2.4

Income from continuing operations, net of taxes		745.4			865.0			588.0			503.8			170.0
Loss from discontinued operations, net of tax		-			-			-			(12.4	)		(17.6	)
Net income		745.4			865.0			588.0			491.4			152.4

Add: net loss attributable to the noncontrolling interest in subsidiaries		-			-			-			0.2			3.6
Net income attributable to Shire plc		745.4			865.0			588.0			491.6			156.0

Earnings per share – basic
Income from continuing operations		134.2	c		156.9	c		107.7	c		93.2	c		32.1	c
Loss from discontinued operations		-			-			-			(2.3c	)		(3.3c	)
Earnings per ordinary share - basic		134.2	c		156.9	c		107.7	c		90.9	c		28.8	c
Earnings per share – diluted
Income from continuing operations		130.9	c		150.9	c		105.3	c		91.9	c		31.8	c
Loss from discontinued operations		-			-			-			(2.2c	)		(3.2c	)
Earnings per ordinary share - diluted		130.9	c		150.9	c		105.3	c		89.7	c		28.6	c

(1)	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 $13 million, $nil, $45.0 million, $43.4 million and $nil in the years ended December 31, 2012, 2011, 2010, 2009 and 2008 respectively;

Costs of $62.9 million associated with the termination of the Women’s Health development agreement with Duramed Pharmaceuticals, Inc. (“Duramed”) in the year to December 31, 2009; and

Impairment loss of $197.9 million in respect of RESOLOR intangible assets (finite lived intangible assets ($126.7 million) and in-process research and development (“IPR&D”) assets ($71.2 million)) in the year to December 31, 2012; Impairment loss of $16.0 million in respect of RESOLOR IPR&D assets in the year to December 31, 2011; impairment loss of $42.7 million following the decision to divest DAYTRANA to Noven in the year to December 31, 2010; and costs of $149.9 million on the cessation of commercialization of DYNEPO in the year to December 31, 2008.

(2)	The following items are included within Total other (expense)/ income, net:

Gains on sale of non-current investments of $18.1 million, $23.5 million, $11.1 million, $55.2 million and $9.4 million in the years ended December 31, 2012, 2011, 2010, 2009 and 2008 respectively;

Other than temporary impairment charges for available-for-sale investments of $nil, $2.4 million, $1.5 million, $0.8 million and $58.0 million in the years ended December 31, 2012, 2011, 2010, 2009 and 2008 respectively; and

Interest expense in respect of the Transkaryotic Therapies, Inc. (“TKT”) appraisal rights litigation of $nil, $nil, $nil, $nil and $87.3 million in the years ended December 31, 2012, 2011, 2010, 2009 and 2008 respectively.

For further information, see ITEM 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and ITEM 15: Exhibits and Financial Statement Schedules.

Weighted average number of
shares (millions):	2012			2011			2010			2009			2008
Basic		555.4			551.1			546.2			540.7			541.6
Diluted		593.5			595.4			590.3			548.0			545.4
Cash dividends declared and paid per ordinary share		15.320	c		13.330	c		11.500	c		9.908	c		8.616	c

December 31,
	2012		2011		2010		2009		2008
		$’M		$’M		$’M		$’M		$’M
Balance sheets:
Total current assets		3,212.1		2,208.2		1,880.3		1,570.2		1,044.4
Total assets		7,317.2		6,380.2		5,387.6		4,617.5		3,933.7
Total current liabilities		1,645.6		2,534.3		1,293.3		1,020.0		823.8
Long term obligations		1,341.6		144.3		1,290.8		1,390.7		1,434.4
Total liabilities		3,508.0		3,195.2		2,936.2		2,705.0		2,606.2
Total equity		3,809.2		3,185.0		2,451.4		1,912.5		1,327.5

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 Part IV in this Annual Report on Form 10-K.

Overview

Shire plc is a leading specialty biopharmaceutical company that focuses on meeting the needs of the specialist physician. The Company has grown through acquisition, completing a series of major transactions that have brought therapeutic, geographic and pipeline growth and diversification. The Company will continue to evaluate companies, products and pipeline opportunities that offer a good strategic fit and have the potential to deliver demonstrable value to all of the Company’s stakeholders: patients, physicians, policy makers, payors, investors and employees.

Shire’s vision is to imagine and lead the future of healthcare for people with life-altering conditions, creating value for society. The Company will execute on its vision through its strategy and business model. For further details of Shire’s strategy refer to Part I ITEM 1: Business of this Annual Report on Form 10-K.

Shire focuses on treatments and services for symptomatic conditions in areas of high medical need, so patients experience a noticeable and ongoing improvement in their lives. Through deep understanding of patients’ needs, the Company develops and provides healthcare in the areas of:

·	Behavioral Health and Gastro Intestinal conditions;

·	Rare Genetic Diseases; and

·	Regenerative Medicine;

as well as other symptomatic conditions treated by specialist physicians. 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.

Substantially all of the Company’s revenues, expenditures and net assets are attributable to the R&D, manufacture, sale and distribution of pharmaceutical products within three reportable segments: SP, HGT and RM. The Company also earns royalties (where Shire has out-licensed products to third parties) which are recorded as revenues.

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

94% (2011: 93%) of total revenues are derived from product sales, of which 64% (2011: 66%) are within SP, 32% (2011: 31%) are within HGT and 4% (2011: 3%) are within RM; and

5% of total revenues are derived from royalties (2011: 6%).

The markets in which the Company conducts its business are highly competitive and highly regulated.

There is increasing legislation both in the US and the rest of the world which is placing downward pressure on the net pricing of pharmaceutical products and medical devices. For example the US government passed healthcare reform legislation in 2010 which included an increase in Medicaid rebate rates and extended Medicaid rebates to those products provided through Medicaid managed care organizations. The legislation also imposed excise fees to be paid by both pharmaceutical manufacturers (from 2011) and medical device companies (from 2013). The impact of these recent changes to US healthcare legislation, and other healthcare reforms in the rest of the world, has not to date had a material impact on the Company’s results of operations.

The health-care industry is also experiencing:

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

increasing challenges from third party payors 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

Historically, Shire’s portfolio of approved products has been heavily weighted towards the North American market. The acquisition in 2005 of TKT and the consequent establishment of the Company’s HGT business, together with the acquisitions of New River Pharmaceuticals in 2007 (which brought full rights to ADHD product VYVANSE), Jerini AG ("Jerini") in 2008 (which brought the HAE product FIRAZYR), EQUASYM in 2009 (which facilitated Shire’s immediate access to the European ADHD market) and Movetis NV ("Movetis") in 2010 (which brought EU rights to RESOLOR). The acquisition of ABH in 2011 (which subsequently became RM), and FerroKin Biosciences in 2012 (which brought a new hematology drug to the SP portfolio) provided Shire with platforms to increase its presence in Europe and the rest of the world (“RoW”), thereby working towards diversifying the risk associated with reliance on one geographic market. In 2012 the SP and HGT businesses derived 15% and 75%, respectively, of their product sales from outside of the US. Currently all RM product sales are generated in the US. 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:

continued launch of VYVANSE in Brazil (marketed as VENVANSE) and the potential approval and launch of VYVANSE in Mexico;

approval of ELVANSE/TYVENSE in certain countries in the EU for treatment of ADHD in children;

filing in 2012 of an application to expand the label of FIRAZYR in the EU to include the treatment of attacks of ACE-inhibitor induced Angioedema;

filing in 2012 of an application in Europe for the VPRIV label to be updated with data regarding the impact of VPRIV on certain parameters of bone disease in Type 1 Gaucher patients;

INTUNIV Phase 3 clinical program to support submission of an MAA in the EU; and

continued roll-out of DFU in Canada and RESOLOR in the EU.

R&D

Over the last five years Shire has focused its R&D efforts on products in its core therapeutic areas and concentrated its resources on obtaining regulatory approval for later-stage pipeline products within these core therapeutic areas. In addition to continued efforts in its late stage pipeline for the ADHD, GI, HGT and RM therapeutic areas, Shire has also progressed work on an earlier stage pipeline.

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 five years. In this time several products have received regulatory approval including: in the US, INTUNIV in 2009, VPRIV in 2010, and FIRAZYR in 2011; in the EU, VPRIV in 2010 and ELVANSE/TYVENSE in 2012; in Canada, VYVANSE in 2010 and DERMAGRAFT in 2012.

Shire’s strategy is focused on the development of product candidates that have a lower risk profile. As Shire further expanded its earlier phase pipeline, R&D costs in 2012 included expenditure on several pre-clinical to Phase 3 studies for products in development as well as Phase 3(b) and Phase 4 studies to support recently launched products in the SP and HGT businesses, together with the development of new projects in the SP, HGT and RM businesses. 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 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, they are generally able to sell the Company’s products at a much lower price.

As expected, in 2009 Teva and Impax commenced commercial shipments of their authorized generic versions of ADDERALL XR, which led to lower sales of branded ADDERALL XR compared to the period prior to the authorized generic launch. As discussed in ITEM 1: Business, in June 2012 the FDA reached a decision on the Citizen Petition for ADDERALL XR which was filed in October 2005. The FDA also approved an ANDA for a generic version of ADDERALL XR. Sales of AXR decreased in 2012 due to the launch of a new generic product.

In 2011 authorized generic and generic versions of the Company’s CARBATROL and REMINYL products respectively were launched, which led to lower sales of these branded products compared to the period before loss of exclusivity.

Shire is engaged in various legal proceedings with generic manufacturers with respect to its VYVANSE, INTUNIV, FOSRENOL, LIALDA and ADDERALL XR patents. For more detail of current patent litigation, see ITEM 3: Legal

Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.

Business Development

Shire seeks to focus its business development activity on the acquisition and in-licensing of products which offer a good strategic fit and have the potential to deliver demonstrable value to all of the Company’s stakeholders.

Recent mergers or acquisitions

In 2012 Shire acquired FerroKin Biosciences Inc. which added SPD 602 to the SP business unit (SDP 602 is in Phase 2 for treatment of iron overload following numerous blood transfusions).

Through the acquisition of ABH in 2011 Shire obtained DERMAGRAFT, which is currently marketed in the US for the treatment of DFU, and established the RM business unit. In 2012 Shire acquired substantially all the assets and certain liabilities of Pervasis Therapeutics Inc., which added VASCUGEL (now SRM-003) to the RM business unit (SRM-003 is in Phase 2 development for acute vascular repair).

Through the acquisition of Movetis in 2010, Shire obtained RESOLOR, which is approved for the treatment of chronic constipation in women in the EU and Switzerland. In addition, in 2012 Shire acquired the rights to market RESOLOR in the US.

Collaboration and licensing activity

Shire has also entered into a number of collaboration and license agreements, including:

A collaboration and license agreement with Sangamo to develop therapeutics for hemophilia and other monogenic diseases based on Sangamo’s ZFP technology in 2012;

An exclusive license in markets outside of North America for the ActRIIB class of molecules being developed by Acceleron in 2010. The collaboration with Acceleron will initially focus on further developing HGT-4510 (also called ACE-031) for the treatment of patients with DMD.

A worldwide exclusive license from IGAN Biosciences, Inc. (“IGAN”) to develop and commercialize protease-based therapeutics for the treatment of IgA nephropathy, a rare kidney disease.

Shionogi co-development and co-commercialization agreement for VYVANSE and INTUNIV in Japan.

Organization and Structure

Shire’s internal financial reporting is in line with its business unit and management reporting structure. The Company has three business units and three reporting segments: SP, HGT and RM. During 2010, to support the Company’s geographical expansion and diversification, Shire established an international commercial hub in Switzerland.

On January 23, 2013 Shire announced that it had decided to proceed with a collective dismissal and business closure at its site in Turnhout, Belgium. This decision follows the conclusion of an information and consultation process. Shire will continue to sell RESOLOR in Europe and the supply of RESOLOR for patients in Europe who rely on the medicine will not be affected. The collective dismissal and business closure of the Turnhout site is not expected to have a material impact on the Company’s consolidated financial position and results of operations in future periods.

Results of operations for the years to December 31, 2012 and 2011

Financial highlights for the year to December 31, 2012 are as follows:

Product sales in 2012 were up 12% to $4,407 million (2011: $3,950 million). On a Constant Exchange Rate (“CER”) 1 basis, which is a Non GAAP measure, product sales were up 13%.

Product sales excluding ADDERALL XR grew strongly and were up 16% particularly driven by growth from VYVANSE (up 28% to $1,030 million), VPRIV (up 20% to $307 million), INTUNIV (up 29% to $288 million) and FIRAZYR (up 252% to $116 million).

ADDERALL XR product sales were down 19% to $429 million primarily due to lower prescription volumes following the approval of a new generic version of ADDERALL XR in the second quarter of 2012. Reported product sales were also impacted by the accounting for the settlement of the Impax Laboratories, Inc. (“Impax”) litigation (see ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K for further details).

Total revenues increased by 10% (up 12% on a Non GAAP CER basis) as the growth in product sales was partially offset by lower royalties and other revenues (down 12%), primarily ADDERALL XR royalties following the launch of a new generic competitor in the second quarter of 2012. The decline in ADDERALL XR royalties was partially offset by the recognition of one-time royalty income of $38 million following resolution of a disagreement with GSK and ViiV relating to royalty payments for 3TC and ZEFFIX.

Operating income in 2012 was down 14% to $949 million (2011: $1,109 million) primarily resulting from charges to impair intangible assets for RESOLOR in the EU ($198 million). The impairments were due to lower actual and projected performance for the product given the increasingly challenging European reimbursement environment. Operating income in 2012 was also impacted by a charge of $58 million in relation to the agreement in principle with the US Government to resolve a previously disclosed civil investigation. Further information about litigation proceedings can be found in ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K. Excluding these charges operating income in 2012 was up by 9%.

Diluted earnings per ordinary share decreased by 13% to $1.31 (2011: $1.51) primarily due to the lower operating income, partially offset by a lower effective tax rate of 18% (2011: 21%).

The Company’s management analyzes product sales and revenue growth for certain products sold in markets outside of the US on a constant exchange rate (“CER”) basis, so that product sales and revenue growth can be considered excluding movements in foreign exchange rates. Product sales and revenue growth on a CER basis is a Non-GAAP financial measure (“Non-GAAP CER”), computed by comparing 2012 product sales and revenues restated using 2011 average foreign exchange rates to 2011 actual product sales and revenues. This Non-GAAP financial measure is used by Shire’s management, and is considered to provide useful information to investors about the Company’s results of operations, because it facilitates an evaluation of the Company’s year on year performance on a comparable basis. Average exchange rates for the year to December 31, 2012 were $1.59:£1.00 and $1.29:€1.00 (2011: $1.60:£1.00 and $1.39:€1.00).

Total revenues

The following table provides an analysis of the Company’s total revenues by source:

Year to December 31,	2012		2011		Change
	$'M		$'M		%
Product sales		4,406.7		3,950.2		+12	%
Royalties		241.6		283.5		-15	%
Other revenues		32.9		29.7		+11	%
Total		4,681.2		4,263.4		+10	%

Product sales

	Year to		Year to
	December 31,		December 31,		Product sales		Non-GAAP CER			US prescription			Exit market
	2012		2011		growth		growth			growth1			share1
	$'M		$'M		%		%			%			%
SP
Behavioral Health
VYVANSE		1,029.8		805.0		+28		+28			+17			17
ADDERALL XR		429.0		532.8		-19		-19			-11			5
INTUNIV		287.8		223.0		+29		+29			+34			5
EQUASYM		29.2		19.9		+47		+53			n/a	2		n/a	2

GI
LIALDA / MEZAVANT		399.9		372.1		+7		+8			+5			22
PENTASA		265.8		251.4		+6		+6			-5			14
RESOLOR		11.8		6.1		+93		n/a			n/a	3		n/a	3

General Products
FOSRENOL		172.0		166.9		+3		+6			-19			4
XAGRID		97.2		90.6		+7		+14			n/a	2		n/a	2
Other product sales		112.4		147.8		-24		-23			n/a			n/a
		2,834.9		2,615.6		+8
HGT
ELAPRASE		497.6		464.9		+7		+11			n/a	3		n/a	3
REPLAGAL		497.5		475.2		+5		+10			n/a	2		n/a	2
VPRIV		306.6		256.2		+20		+23			n/a	2		n/a	2
FIRAZYR		116.3		33.0		+252		+258			n/a	2		n/a	2
		1,418.0		1,229.3		+15

RM
DERMAGRAFT		153.8		105.3		+46		+46	4		n/a	2		n/a	2
Total RM product sales		153.8		105.3		+46
Total product sales		4,406.7		3,950.2		+12

(1)	Data provided by IMS. Exit market share represents the average US market share in the month ended December 31, 2012.

(2)	IMS NPA Data not available.

(3)	Not sold in the US in the year to December 31, 2012.

(4)	DERMAGRAFT was acquired by Shire on June 28, 2011 (sales growth above reflects full year 2012 sales compared to post acquisition sales for 2011).

Specialty Pharmaceuticals

VYVANSE – ADHD

VYVANSE product sales grew strongly (28%) in 2012 as a result of higher prescription demand, due to growth in US ADHD market (+9%) and VYVANSE’s share of that market, and as a result of a price increase taken in 2012. These

positive factors, together with lower sales deductions in 2012, more than offset the effect of higher retailer destocking in 2012 compared to 2011 and some shipment slippage at the end of the fourth quarter.

Litigation proceedings regarding VYVANSE are ongoing. Further information about this litigation can be found in ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.

ADDERALL XR – ADHD

ADDERALL XR product sales decreased (-19%) in 2012 as a result of lower US prescription demand following the introduction of a new generic competitor and the impact of the accounting for the legal settlement with Impax, which reduced reported product sales by $42 million in 2012, in addition to the effect of product destocking in 2012 compared to stocking in 2011 and, higher sales deductions. These negative factors were partially offset by the benefit of a price increase taken during 2012.

On February 7, 2013 Shire and Impax settled all litigation relating to Shire’s contract to supply Impax with authorized generic ADDERALL XR. Under the terms of the settlement Shire will make a one-time cash payment to Impax of $48 million, which has been recorded as a liability at December 31, 2012. In accordance with US GAAP, as this represents a payment to a customer, the amount has been recorded in the Income Statement as a reduction in reported ADDERALL XR product sales and royalties ($42 million and $6 million respectively) in 2012.

Further information about litigation proceedings regarding ADDERALL XR, and the Impax settlement, can be found in ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.

INTUNIV – ADHD

INTUNIV product sales were up 29% compared to 2011, primarily driven by strong growth in US prescription demand (up 34% compared to 2011), together with price increases taken during 2012. These positive factors were partially offset by lower stocking in 2012 and higher sales deductions in 2012 compared to 2011.

LIALDA/MEZAVANT – Ulcerative colitis

The growth in product sales for LIALDA/MEZAVANT (7%) in 2012 was primarily driven by higher market share in the US and a price increase taken since the fourth quarter of 2011, the effects of which were partially offset by product destocking in 2012 compared to a small amount of product stocking in 2011 and higher sales deductions in 2012. Growth in US net product sales was partially offset by the impact of lower priced imports into certain European markets.

Litigation proceedings regarding LIALDA/MEZAVANT are ongoing. Further information about this litigation can be found in ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.

PENTASA – Ulcerative colitis

PENTASA product sales were up 6% as the benefit of price increases was partially offset by lower prescription demand, a small amount of destocking in 2012 and higher sales deductions as compared to 2011.

FOSRENOL – Hyperphosphatemia

Product sales of FOSRENOL in the US increased (3%) due to the effect of price increases in 2012 and lower sales deductions compared to 2011, which more than offset the decline in prescription demand. Product sales of FOSRENOL outside the US decreased marginally primarily because of the impact of unfavorable foreign exchange.

Litigation proceedings regarding Shire’s FOSRENOL patents are ongoing. Further information about this litigation can be found in ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.

Human Genetic Therapies

ELAPRASE – Hunter syndrome

Reported ELAPRASE sales growth (7%) was driven by an increase in the number of patients on therapy. On a Non GAAP CER basis, ELAPRASE sales grew by 11% as reported sales were held back by unfavorable foreign exchange (amounting to approximately $20 million) primarily due to weaker European currencies in 2012 compared to 2011. The increase in ELAPRASE sales between the third quarter and fourth quarter of 2012 was partly driven by the timing of certain large orders from markets which order less frequently.

REPLAGAL – Fabry disease

Reported REPLAGAL sales growth (5%) was driven by an increase in the number of patients on therapy. On a Non GAAP CER basis, REPLAGAL sales grew by 10%, as reported sales were impacted by unfavorable foreign exchange (amounting to approximately $26 million), primarily due to weaker European currencies in 2012 compared to 2011. The reduction in REPLAGAL sales between the third and fourth quarter of 2012 was partly driven by the timing of certain large orders from markets which order less frequently.

Litigation proceedings regarding REPLAGAL are ongoing. Further information about this litigation can be found in ITEM 3: Legal Proceedings and Note 17, “Commitments and Contingencies, Legal proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.

VPRIV – Gaucher disease

Reported VPRIV sales growth (20%) was driven by an increase in the number of patients on therapy. On a Non GAAP CER basis, VPRIV sales increased by 23% as reported sales were also held back by unfavorable foreign exchange (amounting to approximately $8 million).

FIRAZYR – HAE

Reported FIRAZYR sales growth (252%) was driven largely by the first full year of sales in the US market, following launch of FIRAZYR in the market in fourth quarter of 2011.

Regenerative Medicine

DERMAGRAFT – DFU

DERMAGRAFT product sales were up 46%(1) compared to sales reported by Shire subsequent to acquisition in 2011. On a full year basis, sales for DERMAGRAFT were down 21% reflecting the impact of an ongoing restructuring of the RM sales and marketing organization and the implementation of a new commercial model, all of which is expected to position DERMAGRAFT for future sales growth.

1.	Shire acquired DERMAGRAFT through its acquisition of ABH on June 28, 2011 and reported revenues from DERMAGRAFT of $105.3m relating to the post acquisition period in 2011.

Royalties

	Year to		Year to
	December 31,		December 31,
	2012		2011		Change
	$'M		$'M		%
3TC and ZEFFIX		91.6		82.7		+11	%
ADDERALL XR		70.3		107.1		-34	%
FOSRENOL		53.3		46.5		+15	%
Other		26.4		47.2		-44	%
Total		241.6		283.5		-15	%

Royalties from 3TC and ZEFFIX include one-time royalty income of $38 million in respect of prior periods due to resolution of the disagreement between Shire, GSK and ViiV as to how the royalty rate for these products should be applied. This

one-time income more than offset the underlying decline in 3TC and ZEFFIX royalties as a result of increased competition and the expiry of patents in certain territories in 2012.

Royalties from ADDERALL XR in 2012 were significantly impacted by the lower royalty rate payable on sales of authorized generic ADDERALL XR by Impax, following the launch of a new generic version of ADDERALL XR in late second quarter of 2012.

FOSRENOL royalties increased primarily due to higher royalties received on sales in Japan.

Other royalties decreased primarily due to increased generic competition.

Cost of product sales

Cost of product sales increased to $645.4 million for the year to December 31, 2012 (15% of product sales), up from $588.1 million in the corresponding period in 2011 (2011: 15% of product sales). The costs of product sales as a percentage of product sales remained constant as the impact of lower gross margins in 2012 was offset by the fair value adjustment relating to DERMAGRAFT inventories and costs incurred on the transfer of manufacturing from Owings Mills in 2011 which were not repeated in 2012.

For the year to December 31, 2012 cost of product sales included depreciation of $31.5 million (2011: $39.8 million) and amortization of $0.7 million (2011: $1.7 million).

R&D

R&D expenditure increased to $965.5 million for the year to December 31, 2012 (22% of product sales), compared to $770.7 million in the corresponding period in 2011 (20% of product sales). In the year to December 31, 2012 R&D included up-front payment of $13.0 million to Sangamo, $10.0 million to acquire the US rights for prucalopride (marketed in certain countries in Europe as RESOLOR) and IPR&D impairment charges in respect of RESOLOR of $71.2 million (2011: $16.0 million). Excluding these costs R&D increased by $100.6 million or 20% in the year to December 31, 2012 due to the Company’s continued investment in a number of targeted R&D programs, particularly new uses of LDX and recently acquired assets including SPD602 for iron overload (acquired with FerroKin). R&D in 2012 also included a full year of ABH’s R&D costs (ABH was acquired in late June 2011).

R&D in the year to December 31, 2012 included depreciation of $22.5 million (2011: $25.2 million).

SG&A

SG&A expenditure increased to $2,114.0 million (48% of product sales) for the year to December 31, 2012 from $1,751.4 million (44% of product sales) in the corresponding period in 2011. In the year to December 31, 2012 SG&A increased by $362.6 million, or 21%, as 2012 included higher intangible asset amortization, the impact of impairment charges and higher legal and litigation costs, which included a charge of $57.5 million in relation to the agreement in principle with the US Government and settling the litigation related to the termination of co-promotion agreement for VYVANSE.

Impairment charges of $126.7 million relate to RESOLOR intangible assets as the actual and projected performance for RESOLOR has been adversely affected by the challenging European reimbursement environment. Shire has evaluated alternative sales and marketing strategies for RESOLOR in response to these challenges but has judged that projected profitability levels will continue to be below the level forecast at the time of the acquisition of Movetis.

For the year to December 31, 2012 SG&A included depreciation of $59.8 million (2011: $63.1 million) and amortization of $194.1 million (2011: $165.0 million).

(Gain)/loss on sale of product rights

For the year to December 31, 2012 Shire recorded a gain on sale of product rights of $18.1 million (2011: loss of $6.0 million) following re-measurement of the contingent consideration receivable from the divestment of DAYTRANA.

Integration and acquisition costs

For the year to December 31, 2012 Shire recorded integration and acquisition costs of $25.2 million (2011: $13.7 million), primarily associated with the acquisition of FerroKin and the integration of ABH. In 2011 integration and acquisition costs primarily related to the acquisition of ABH.

Interest expense

For the year to December 31, 2012 Shire incurred interest expense of $38.2 million (2011: $39.1 million). Interest expense principally relates to the coupon and amortization of issue costs on Shire’s $1,100 million 2.75% convertible bonds due 2014.

Taxation

The effective rate of tax in 2012 was 18% (2011: 21%). The effective tax rate in 2012 is lower than 2011 due to favorable changes in profit mix in 2012 and the benefit of the recognition of foreign tax credits.

Results of operations for the years to December 31, 2011 and 2010

Financial highlights for the year to December 31, 2011 are as follows:

Product sales in 2011 were up 26% to $3,950 million (2010: $3,128 million). On a CER1 basis, product sales were up 24%.

Product sales growth was generated from across the portfolio, particularly VYVANSE (up 27% to $805 million), ADDERALL XR (up 48% to $533 million), REPLAGAL (up 35% to $475 million), ELAPRASE (up 15% to $465 million), LIALDA/MEZAVANT (up 27% to $372 million) and VPRIV (up 79% to $256 million). Product sales in 2011 also benefited from $105 million of DERMAGRAFT sales made subsequent to the acquisition of ABH.

Total revenues in 2011 exceeded $4 billion for the first time, increasing by 23% (Non GAAP CER: up 21%) to $4,263 million (2010: $3,471 million). The strong product sales growth more than offset decreased royalties and other revenues, down 9% due to lower 3TC and ZEFFIX royalties.

Operating income was up 40% to $1,109 million (2010: $794 million), as total revenues grew at a faster rate than R&D and SG&A expenditure. Operating income in 2010 included impairment charges recorded on the divestment of DAYTRANA and an up-front payment of $45 million to Acceleron.

Diluted earnings per ordinary share were up 43% to 150.9c (2010: 105.3c) due to higher operating income and a lower effective tax rate in 2011 of 21% (2010: 24%).

The Company’s management analyzes product sales and revenue growth for certain products sold in markets outside of the US on a constant exchange rate (“CER”) basis, so that product sales and revenue growth can be considered excluding movements in foreign exchange rates. Product sales and revenue growth on a CER basis is a Non-GAAP financial measure (“Non-GAAP CER”), computed by comparing 2011 product sales and revenues restated using 2010 average foreign exchange rates to 2010 actual product sales and revenues. This Non-GAAP financial measure is used by Shire’s management, and is considered to provide useful information to investors about the Company’s results of operations, because it facilitates an evaluation of the Company’s year on year performance on a comparable basis. Average exchange rates for the year to December 31, 2011 were $1.60:£1.00 and $1.39:€1.00 (2010: $1.55:£1.00 and $1.33:€1.00).

Total revenues

The following table provides an analysis of the Company’s total revenues by source:

Year to December 31,	2011		2010		Change
	$'M		$'M		%
Product sales		3,950.2		3,128.2		+26
Royalties		283.5		328.1		-14
Other revenues		29.7		14.8		+101
Total		4,263.4		3,471.1		+23

Product sales

Year to