10-K 1 dp53559_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, 2014
[  ]
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)
 
 
1

 
 
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, 2014, 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 $ 45.9 billion. This was computed using the average bid and asked price at the above date.
 
As at February 13, 2015, the number of outstanding ordinary shares of the Registrant was 599,166,248.
 

 
2

 

THE “SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
 
Statements included herein that are not historical facts are forward-looking statements. Such forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, Shire’s results could be materially adversely affected. The risks and uncertainties include, but are not limited to, that:
 
 
·
Shire’s products may not be a commercial success;
 
 
·
product sales from ADDERALL XR and INTUNIV are subject to generic competition;
 
 
·
the failure to obtain and maintain reimbursement, or an adequate level of reimbursement, by third-party payers in a timely manner for Shire's products may affect future revenues, financial condition and results of operations;
 
 
·
Shire conducts its own manufacturing operations for certain of its products and is reliant on third party contract manufacturers to manufacture other products and to provide goods and services. Some of the Shire’s products or ingredients are only available from a single approved source for manufacture. Any disruption to the supply chain for any of the Shire’s products may result in Shire being unable to continue marketing or developing a product or may result in Shire being unable to do so on a commercially viable basis for some period of time;
 
 
·
the manufacture of Shire’s products is subject to extensive oversight by various regulatory agencies. Regulatory approvals or interventions associated with changes to manufacturing sites, ingredients or manufacturing processes could lead to significant delays, an increase in operating costs, lost product sales, an interruption of research activities or the delay of new product launches;
 
 
·
Shire has a portfolio of products in various stages of research and development. The successful development of these products is highly uncertain and requires significant expenditures and time, and there is no guarantee that these products will receive regulatory approval;
 
 
·
the actions of certain customers could affect Shire's ability to sell or market products profitably. Fluctuations in buying or distribution patterns by such customers can adversely affect Shire’s revenues, financial 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 significant legal costs and the payment of substantial compensation or fines;
 
 
·
adverse outcomes in legal matters and other disputes, including Shire’s ability to enforce and defend patents and other intellectual property rights required for its business, could have a material adverse effect on Shire’s revenues, financial condition or results of operations;
 
 
·
Shire faces intense competition for highly qualified personnel from other companies and organizations. Shire is undergoing a corporate reorganization and was the subject of an unsuccessful acquisition proposal and the consequent uncertainty could adversely affect Shire’s ability to attract and/or retain the highly skilled personnel needed for Shire to meet its strategic objectives;
 
 
·
failure to achieve Shire’s strategic objectives with respect to the acquisition of NPS Pharmaceuticals Inc. (“NPS Pharma”) may adversely affect Shire’s financial condition and results of operations; and
 
other risks and uncertainties detailed from time to time in Shire’s filings with the Securities and Exchange Commission, including those risks outlined in “Item 1A: Risk Factors” in Shire’s Annual Report on Form 10-K for the year ended December 31, 2014.

 
3

 


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)
ADUVANZTM (lisdexamfetamine dimesylate)
AGRYLIN® (anagrelide hydrochloride)
AMITIZA® (trademark of Sucampo Pharmaceuticals)
APRISO® (trademark of Salix Pharmaceuticals, Ltd. (“Salix”))
ASACOL® (trademark of Medeva Pharma Suisse AG (used under license by Warner Chilcott Company, LLC (“Warner Chilcott”)))
BERINERT® (trademark of CSL Behring GmbH)
BERINERT P® (trademark of Aventis Behring GmbH)
BUCCOLAM® (midazolam hydrochloride oromucosal solution)
CALCICHEW® (trademark of Takeda Nycomed AS)
CARBATROL® (carbamazepine extended-release capsules)
CERDELGA®   (trademark of Genzyme Corporation (“Genzyme”))
CEREZYME® (trademark of Genzyme)
CINRYZE® (C1 esterase inhibitor [human])
CLAVERSAL® (trademark of Merckle Recordati)
COLAZAL® (trademark of Salix Pharmaceuticals, Inc)
CONCERTA® (trademark of Alza Corporation (“Alza”))
CONSTELLATM (trademark of Ironwood Pharmaceuticals)
DAYTRANA® (trademark of Noven Pharmaceutical Inc. (“Noven”))
DELZICOL® (trademark of Warner Chilcott)
DERMAGRAFT® (trademark of Organogenesis Inc. (“Organogenesis”))
ELAPRASE® (idursulfase)
ELELYSO® (trademark of Pfizer Inc.)
ELVANSE® (lisdexamfetamine dimesylate)
ELVANSE ADULT® (lisdexamfetamine dimesylate)
ELVANSE VUXEN® (lisdexamfetamine dimesylate)
EPIVIR® (trademark of GlaxoSmithKline (“GSK”))
ESTRACE® (trademark of Trimel Pharmaceuticals Inc.)
EQUASYM® (methylphenidate hydrochloride)
EQUASYM XL® (methylphenidate hydrochloride)
EXPUTEX® (trademark of Phoenix Labs)
FABRAZYME® (trademark of Genzyme)
FIRAZYR® (icatibant)
FOCALIN® (trademark of Novartis AG)
FOCALIN XR® (trademark of Novartis AG)
FOSRENOL® (lanthanum carbonate)
GATTEX® (teduglutide [rDNA origin])
HUNTERASETM (trademark of Green Cross Corp.)
INTUNIV® (guanfacine extended release)
KALBITOR® (trademark of Dyax Corporation)
KAPVAY® (trademark of Shionogi Pharma, Inc. (“Shionogi”))
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.)
NATPAR® (parathyroid hormone)
NATPARA® (parathyroid hormone (rDNA))
PENTASA® (trademark of Ferring B.V. Corp (“Ferring”))
PLENADREN (hydrocortisone, modified release tablet)
PREMIPLEX® (IGF-I/IGFBP-3)
QUILLIVANT® (trademark of Next Wave Pharmaceuticals, Inc.)
REMINYL® (galantamine hydrobromide) (United Kingdom ("UK”) and Republic of Ireland) (trademark of Johnson & Johnson (“J&J”)), excluding UK and Republic of Ireland)
REPLAGAL® (agalsidase alfa)
RESOLOR® (prucalopride)

 
4

 



REVESTIVE® (teduglutide)
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)
TYVENSE® (lisdexamfetamine dimesylate)
UCERIS® (trademark of Santarus, Inc.)
VASCUGEL® (allogeneic aortic endothelial cells cultured in a porcine gelatin matrix [Gelfoam®] with cytokines, implanted)
VANCOCIN® (trademark of ANI Pharmaceuticals Inc.)
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)
 

 
5

 

SHIRE PLC
2014 Form 10-K Annual Report
Table of contents

         
PART I
     
ITEM 1. BUSINESS
     
 
General
 
7
 
 
Strategy
 
7
 
 
Business model
 
7
 
 
2014 highlights
 
8
 
 
Financial information about operating segments
 
9
 
 
Sales and marketing
 
9
 
 
Manufacturing and distribution
 
24
 
 
Intellectual property
 
25
 
 
Competition
 
27
 
 
Government regulation
 
29
 
 
Third party reimbursement and pricing
 
30
 
 
Responsibility
 
32
 
 
Employees
 
32
 
 
Available information
 
32
 
ITEM 1A. RISK FACTORS
 
33
 
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
40
 
ITEM 2.   PROPERTIES
 
41
 
ITEM 3.   LEGAL PROCEEDINGS
 
42
 
ITEM 4.   MINE SAFETY DISCLOSURES
 
42
 
       
PART II
     
ITEM 5.    MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER  MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
43
 
ITEM 6.    SELECTED FINANCIAL DATA
 
46
 
ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
48
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
76
 
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
79
 
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING  AND FINANCIAL DISCLOSURE
 
79
 
ITEM 9A.  CONTROLS AND PROCEDURES
 
79
 
ITEM 9B.  OTHER INFORMATION
 
80
 
       
PART III
     
ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
81
 
ITEM 11.   EXECUTIVE COMPENSATION
 
86
 
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
117
 
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 
118
 
ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
118
 
       
PART IV
     
ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
120
 

 
6

 

 
PART I
 
ITEM 1: Business
 
General
 
Shire plc and its subsidiaries (collectively referred to as either “Shire”, or the “Company”) is a leading biopharmaceutical company that focuses on developing and marketing innovative medicines for patients with rare diseases and other specialty conditions.
 
The Company has grown both organically and through acquisition, completing a series of major transactions that have brought therapeutic, geographic and pipeline growth and diversification. The Company will continue to conduct its own research and development (“R&D”), focused on rare diseases, as well as evaluate companies, products and pipeline opportunities that offer a strategic fit and have the potential to deliver value to all of the Company’s stakeholders: patients, physicians, policy makers, payers, investors and employees.
 
Strategy
 
Shire’s purpose is to enable people with life altering conditions to lead better lives.
 
The Company aspires to become a leading global biotech delivering innovative medicines to patients with rare diseases and other specialty conditions. This is underpinned by four strategic drivers:
 
Growth:
 
 
·
Optimize In-Line assets via commercial excellence
 
·
Advance late-stage pipeline and launch new products
 
·
Accelerate growth through the acquisition of core / adjacent assets

Innovation:
 
 
·
Expand the Company’s rare disease expertise and offerings
 
·
Reinvest in R&D
 
·
Extend the Company’s portfolio to new indications and therapeutic areas
 
·
Collaborate globally to advance the Company’s scientific and commercial priorities

Efficiency:
 
 
·
Operate a lean and agile organization
 
·
Concentrate operations in Lexington, MA, US and Zug, Switzerland
 
·
Execute to a high standard by meeting milestones and delivering on the Company’s commitments

People:
 
 
·
Foster and reward a high performance culture
 
·
Attract, develop and retain the best talent
 
·
Live our values

 
Business model
 
In 2013 Shire integrated its operations into a simplified “One Shire” organization. The One Shire model has created a simple structure and a focused, efficient organization that is scalable for growth.

Shire has commercial units that focus exclusively on the commercial execution of its marketed products (the “In-Line” group) in the areas of Rare Diseases, Neuroscience, Gastrointestinal (“GI”) and Internal Medicine, and in Ophthalmics to support the development of Shire’s ophthalmic pipeline candidates. This ensures that the Company provides innovative treatments, and services the needs of its customers and patients, as efficiently as possible.
 
Shire has a single R&D organization (the “Pipeline” group), and early stage research is focused primarily on rare diseases. This single structure is designed to ensure Shire explores and develops opportunities built upon its core capabilities, priority commercial units and therapeutic areas, and also seeks to explore related and emerging areas.
 
 
 
 

 
7

 


Growth is also fuelled by the acquisition of new companies, in-licensing and new product development opportunities through R&D partnerships. Shire’s global corporate development team searches for new technologies, innovative products and strategic partnerships. The team engages in conversations with scientists and entrepreneurs on a global basis, while collaborating with commercial and R&D experts throughout the Company. 
 
Shire’s support functions, including Technical Operations, are unified across the business to run as efficiently and effectively as possible to support the In-Line and Pipeline activities.
 
Shire leads its business through the Executive Committee, with support from its In-Line Committee and Pipeline Committee, which comprise senior management from across functions and commercial units to support the In-Line products and Pipeline activities. The Executive Committee is responsible for ensuring the appropriate allocation of resources and focused decision making across the enterprise in the best interests of Shire’s, patients, shareholders and other stakeholders.
 
2014 and Recent Highlights
 
See “Currently marketed products” and “Products under development” below for a full discussion of 2014 product, pipeline and business highlights, including:
 
Pipeline development:
 
 
·
the announcement that the US Food and Drug Administration (“FDA”) approved VYVANSE (lisdexamfetamine dimesylate) Capsules (CII), the first and only medication for the treatment of moderate to severe binge eating disorder (“BED”) in adults;
 
 
·
the announcement that the FDA has granted Fast Track designation for SHP609 (idursulfase-IT; also known as HGT-2310) for the treatment of neurocognitive decline associated with Hunter syndrome (mucopolysaccharidosis II or MPSII);
 
 
·
the announcement of the Company’s intention to submit a New Drug Application (“NDA”) for lifitegrast in the first quarter of 2015 as a treatment for the signs and symptoms of Dry Eye disease in adults;
 
 
·
the submission of  an Investigational New Drug (“IND”) application for SHP607 for the prevention of retinopathy of prematurity (“ROP”) with the FDA. Shire further announced that it has received Fast Track designation from the FDA for SHP607;
 
 
·
the completion of two Phase 2 studies of SHP620 (maribavir) for the treatment of cytomegalovirus infection (“CMV”) in transplant patients. The results of the first study showed that maribavir, at all doses, was at least as effective as valganciclovir in the reduction of circulating CMV to below the limits of assay detection (undetectable plasma CMV) in the treatment of asymptomatic CMV viremia in transplant recipients. The second study showed that maribavir, at all doses, was effective at lowering CMV to below the limits of assay detection in patients with disease which is resistant or refractory to the standard of care CMV therapy (e.g., valganciclovir, foscarnet). Approximately two-thirds of patients across the maribavir treatment groups achieved an undetectable plasma CMV DNA (viral load) within six weeks. SHP620 has been granted orphan drug designation in both the US and EU;
 
 
·
the announcement of top-line results from two Phase 4 efficacy and safety studies of VYVANSE compared with CONCERTA (methylphenidate HCl). In SPD489-406, the forced-dose titration study, VYVANSE was found to be statistically superior to CONCERTA on the primary efficacy analysis. In SPD489-405, the dose optimization study, neither VYVANSE nor CONCERTA was found to be statistically superior to the other on the primary efficacy analysis, with a larger mean improvement found for VYVANSE than CONCERTA;
 
Geographical expansion:
 
 
·
the approval of a marketing authorization by the Ministry of Health, Labour and Welfare (“MHLW”) and subsequent launch for AGRYLIN (marketed as XAGRID in the EU) in Japan in adult essential thrombocythaemia patients;
 
 
·
the approval of a marketing authorization by the MHLW and subsequent launch of VPRIV in Japan, for the improvement of symptoms of Gaucher disease;
 
 
·
the acceptance of the submission of a Marketing Authorisation Application (“MAA”) by the European Medicines Agency (“EMA”) for INTUNIV the once-daily, non-stimulant guanfacine extended release for the treatment of Attention Deficit Hyperactivity Disorder (“ADHD”) in children/adolescents aged 6-17 years;
 
 
·
the announcement that ELVANSE received a positive response from the European Decentralised Procedure (“DCP”) in the three European countries participating in the procedure (UK, Denmark and Sweden);
 
Business development:
 
 
·
the acquisition of NPS Pharma on February 21, 2015 for a total cash consideration of approximately $5.2 billion. This acquisition added global rights to an innovative product portfolio with multiple growth catalysts, including, GATTEX/REVESTIVE with growing sales for the treatment of adults with Short Bowl Syndrome (“SBS”), a rare GI condition; and NATPARA/NATPAR, following its US approval on January 23, 2015, the only bioengineered hormone replacement therapy for use in the treatment of Hyperparathyroidism (“HPT”), a rare endocrine disease;
 

 
8

 


 
 
·
the acquisition of Lumena Pharmaceuticals, Inc. (“Lumena”) which added global rights to two late stage pipeline assets, SHP625 (formerly LUM001), in Phase 2 clinical development with four potential orphan indications; and SHP626 (formerly LUM002), ready to enter a Phase 1b multiple dose trial in the first half of 2015;
 
 
·
the acquisition of Fibrotech Therapeutics Pty Ltd. (“Fibrotech”) which added global rights of SHP627 (formerly FT011) in Phase 1b clinical development, a new class of oral drug with a novel mechanism of action which has the potential to address both the inflammatory and fibrotic components of disease processes. In addition Shire has acquired Fibrotech’s library of novel molecules including SHP628 (formerly FT061), which is in pre-clinical development;
 
 
·
the acquisition of BIKAM Pharmaceuticals Inc. (“BIKAM”) which added global rights to SHP630 (formerly BIK-406) in pre-clinical development, for the potential treatment of autosomal dominant retinitis pigmentosa (“adRP”);
 
 
·
the announcement of a worldwide licensing and collaboration agreement with ArmaGen Technologies, Inc. (“ArmaGen”) to develop and commercialize AGT-182, an investigational enzyme replacement therapy for the potential treatment of both the central nervous system and somatic manifestations in patients with Hunter syndrome;
 
 
·
the successful acquisition and integration of ViroPharma Inc. (“ViroPharma”) which added a marketed product for the prophylactic treatment of Hereditary Angioedema (“HAE”), CINRYZE, as well as a number of other marketed products and a pipeline of product candidates in the rare disease area. 
 
Other developments:
 
 
·
the termination of AbbVie’s offer for Shire, pursuant to which AbbVie paid the break fee due under the cooperation agreement of approximately $1.635 billion;
 
 
·
the receipt of the assessments and subsequent settlement with the Canadian revenue authorities by which Shire’s Canadian subsidiary, Shire Canada Inc. received total cash repayments equivalent to $417 million;
 
 
·
the announcement that the US Supreme Court has granted Shire’s petition in the Shire v. Watson patent case regarding LIALDA. The granting of this petition by the Supreme Court vacates the decision of the US Court of Appeals for the Federal Circuit with respect to the claim construction in the case against Watson (now Actavis). For further information see ITEM 3: Legal Proceedings and Note 18, “Commitments and Contingencies, Legal and other proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K;
 
 
·
the announcement related to patent infringement lawsuit regarding VYVANSE, that certain claims of the patents protecting VYVANSE were both infringed and valid. The Court’s summary judgment ruling concerning Shire’s motion included 18 patent claims from four of the FDA Orange Book-listed patents for VYVANSE, which cover VYVANSE’s active ingredient, the lisdexamfetamine dimesylate compound, and a method of using lisdexamfetamine dimesylate for the treatment of ADHD; and
 
 
·
the announcement that Shire reached final agreement on all matters with the US Government relating to a previously disclosed civil investigation of its US sales and marketing practices relating to ADDERALL XR, VYVANSE, DAYTRANA, LIALDA and PENTASA.
 
Financial information about operating segments
 
The Company comprises a single operating and reportable segment. This segment is engaged in the research, development, licensing, manufacturing, marketing, distribution and sale of innovative specialist medicines to meet significant unmet patient needs. Additional segment information is presented in Note 24 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, 2014 the Company employed 2,151 (2013: 2,185) sales and marketing staff to service its operations throughout the world, including its major markets in North America, Europe, Latin America, and Asia Pacific.
 

 
9

 


 
Currently marketed products
 
The table below lists the Company’s main marketed products at December 31, 2014 indicating the owner/licensor, disease area and the key territories in which Shire markets the product.
 
Products
Disease area
Owner/licensor
Key territories
 
Treatments for Neuroscience
VYVANSE/VENVANSE/
ELVANSE/TYVENSE/ELVANSE VUXEN/ADUVANZ (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 and Canada
EQUASYM (methylphenidate hydrochloride) modified release (XL)
 
ADHD
Shire
Europe
BUCCOLAM
Epilepsy
Shire
Europe
       
       
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
 

 
 
10

 


Treatments for Rare Diseases
   
REPLAGAL (agalsidase alfa)
Fabry disease
Shire
Europe, Latin America and Asia Pacific(4)
ELAPRASE (idursulfase)
Hunter syndrome (Mucopolysaccharidosis Type II, MPS II)
Shire
Global(5)
VPRIV (velaglucerase alfa)
Gaucher disease, Type 1
Shire
Global
FIRAZYR (icatibant)
HAE
Shire
US, Europe and Latin America
CINRYZE C1 esterase inhibitor [human]
HAE
Shire
US, Europe and Latin America
       
Treatments for diseases in Other therapeutic areas
FOSRENOL (lanthanum carbonate)
Hyperphosphatemia in end stage renal disease
Shire
US, Europe and Japan(2, 6)
XAGRID/ AGRYLIN (anagrelide hydrochloride)
 
Elevated platelet counts in at risk essential thrombocythemia patients
Shire
Europe and Japan (2)
PLENADREN (modified release hydrocortisone)
Indicated for treatment of adrenal insufficiency in adults
Shire
Europe
(1) Marketed in Brazil as VENVANSE and in the EU as ELVANSE or TYVENSE.
(2) Marketed by distributors in certain other markets.
(3) Marketed in the US as LIALDA and in Europe as MEZAVANT XL or MEZAVANT.
(4) Marketed in Japan under license by Dainippon Sumitomo Pharma Co., Ltd. (“DSP”).
(5) Marketed in Asia Pacific under license by Genzyme.
(6) Marketed in Japan under license by Bayer Yakuhin Limited (“Bayer”).

Treatments for Neuroscience

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 and 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 approximately $903 million in 2013 (moving annual total (“MAT”) October 2013) and grew 10.0% to reach approximately $993 million in the same period in 2014.   
 
According to IMS Health National Prescription Audit (“IMS NPA”), a leading global provider of business intelligence for the pharmaceutical and healthcare industries, the US ADHD market was valued at approximately $8.9 billion for the twelve months ended December 2014; this represents an increase of approximately 6.2% from the twelve months ended December 2013.
 
 

 
11

 


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 FDA approved VYVANSE as a once-daily treatment for children aged 6 to 12 with ADHD in February 2007, for adults in April 2008 and for adolescents aged 13 to 17 in November 2010. In addition VYVANSE became the first drug in its class to be approved by the FDA for maintenance treatment, having been approved both as a maintenance treatment in adults with ADHD in January 2012, and as a maintenance treatment in pediatrics and adolescents aged 6 to 17 in April 2013. VYVANSE is available in the US in seven dosage strengths: 10mg, 20mg, 30mg, 40mg, 50mg, 60mg and 70mg.
 
VYVANSE was approved by Health Canada for the treatment of ADHD in pediatric patients aged 6 to 12 in February 2009, for adolescents and adults in November 2010, and was launched in Canada in January 2010 for pediatric patients and January 2011 for adolescents and adults.
 
VENVANSE was granted marketing authorization by ANVISA, the Brazilian health authority, for the treatment of ADHD in children aged 6-12, and launched in May 2011 and launched for adolescents and adults in November 2013.
 
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 6 years of age and over when response to previous methylphenidate treatment is considered clinically inadequate. The product has received Marketing Authorization approvals and launched in eight countries (UK, Germany, Sweden, Spain, Norway, Finland, Denmark, and Ireland).
 
ELVANSE ADULT/ELVANSE VUXEN/ADUVANZ received a positive outcome from the European Decentralised Procedure in January 2015. ELVANSE ADULT is indicated as part of a comprehensive treatment programme for ADHD in adults taking into consideration the profile of the patient, including a thorough assessment of the severity and chronicity of the patient’s symptoms, the potential for abuse, misuse or diversion and clinical response to any previous pharmacotherapies for the treatment of ADHD. The product has received Marketing Authorization approval in the UK and Marketing Authorization for Sweden and Denmark is expected in the first quarter of 2015.
 
VYVANSE was also approved in January 2015 as the first and only treatment of moderate to severe BED.  BED is defined as recurring episodes (more than once weekly), for at least 3 months, of consuming a large amount of food in a short time, compared with others. Patients feel a lack of control during a binge eating episode and marked distress over their eating. They typically experience shame and guilt, among other symptoms, about their binge eating and may conceal the symptoms.  Unlike people with other eating disorders, adults with BED don’t routinely try to “undo” their excessive eating with extreme actions like purging or over-exercising. BED is the most common eating disorder in the US, affecting an estimated 2.8 million adults1 according to a national survey. BED occurs in both men and women and is more common than anorexia and bulimia combined. BED can occur in normal, overweight, and obese adults, and is seen across racial and ethnic groups.
 
Litigation proceedings relating to the Company’s VYVANSE patents are in progress. For further information see ITEM 3: Legal Proceedings and Note 18, “Commitments and Contingencies, Legal and other proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.
 
1 Crossrow N, Russo LJ, Ming EE,, Witt EA, Victor TW, Wadden TA.  Poster, APA 167th Annual Meeting, New York, NY, May 3 – 7, 2014
 
 
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.  Shire’s supply obligations to Impax ended September 30, 2014. Shire has extended its supply agreement with Teva until September 30, 2016.  From the third quarter of 2012 Shire also started receiving royalties from Actavis’ sales of its generic version of ADDERALL XR. In December 2013, Shire entered into an agreement with Sandoz Inc. (“Sandoz”) whereby Shire will supply Sandoz with an authorized generic version of ADDERALL XR beginning July 1, 2016.  From the December 1, 2013 effective date of the agreement through the end of the agreement’s five-year term, Sandoz has agreed to exclusively sell the authorized generic version of ADDERALL XR supplied by Shire. Shire will receive a royalty on Sandoz's sales of the product.
 
In June 2012 the FDA stated that it will require that all abbreviated new drug applications (“ANDAs”) for ADDERALL XR 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.
 
Further information about litigation proceedings regarding ADDERALL XR can be found in ITEM 3: Legal Proceedings and Note 18, “Commitments and contingencies, Legal and other proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.
 

 
12

 
 
 
 
INTUNIV
 
INTUNIV is 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, 2mg, 3mg and 4mg tablets.
 
INTUNIV XR was approved by Health Canada as monotherapy for the treatment of ADHD in children aged 6 to 12 years and as adjunctive therapy to psychostimulants for the treatment of ADHD in children, aged 6 to 12 years, with a sub-optimal response to psychostimulants in July 2013 and was launched in Canada in November 2013.
 
In March 2014, the Company announced the acceptance of submission of a MAA by the EMA for once-daily, non-stimulant guanfacine extended release for the treatment of ADHD in children/adolescents aged 6-17 years.
 
In April 2013, Shire settled outstanding litigation with Actavis Inc. and certain of its respective affiliates (“Actavis”) and six other ANDA filers regarding their respective ANDAs for INTUNIV. The settlement provides Actavis with a license to make and market Actavis’ generic versions of INTUNIV in the United States for 180 days starting on December 1, 2014. Such sales require the payment of a royalty of 25% of gross profits to Shire during the 180 day period of Actavis’ exclusivity. The settlement also provides the other six ANDA filers with a license to make and market their respective generic versions of INTUNIV in the United States 181 days after Actavis’ launch of generic INTUNIV. Actavis launched a generic version of INTUNIV on December 1, 2014.
 
Further information about litigation proceedings regarding INTUNIV can be found in ITEM 3: Legal Proceedings and Note 18, “Commitments and contingencies, Legal and other 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 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, 2014 EQUASYM XL was commercially available in 10 countries in 10mg, 20mg and 30mg strengths. EQUASYM XL is marketed in Mexico and South Korea by Shire under the trade name METADATE CD.
 
Epilepsy disease state
 
Epilepsy is a chronic condition in which a person has a tendency to have recurrent seizures, normally diagnosed after 2 seizures3. Young children are most at risk because the developing brain is more prone to seizures than the mature brain.  In Europe, approximately 6 million1 people are affected. An estimated 700,000 suffer2 from this condition between 3 months and less than 18 years of age. At least 30% of patients have inadequate seizure3 control, despite appropriate therapy. The aim of anti-epileptic drugs treatment is ‘seizure freedom’ – to prevent seizures. Prolonged, acute seizures are one of the most common neurological emergencies in children, which, if left untreated, can progress to status epilepticus, a condition that is associated with significant morbidity and mortality. Current estimates of case-fatality in childhood range between 2.7% and 5.2%4, but in those admitted to paediatric intensive care units it ranges between 5% and 8%.  Early treatment of prolonged, acute seizures is important, as delayed medical intervention can affect outcomes and drug response. A prospective, population-based study in children demonstrated that for every minute of delay from the start of convulsive status epilepticus to arrival at hospital, there is a 5% cumulative increase in the risk of the seizure5 lasting longer than 60 minutes. Clinical guidelines outlining the treatment of prolonged seizures in children have been issued in several EU countries (UK, Belgium, Finland, France, Germany, Italy, Netherlands, and Sweden).
 
1 (ILAE/IBE/WHO Global Campaign Against Epilepsy 2010)
2 (Calculation from incidence rate, validated with Young Epilepsy)
3 (Kwan and Brodie 2000; Pellock 2007)
4 (Novorol CL, Chin RF, Scott RC. Outcome of convulsive status epilepticus: a review. Arch Dis Child 2007;92 (11):948–951)
5 (Chin RF, Neville BG, Peckham C, et al. Treatment of community-onset, childhood convulsive status epilepticus: a prospective, population based study. Lancet Neurol 2008;7 (8):696–703
 
BUCCOLAM
 
BUCCOLAM is the first and only licensed oromucosal midazolam solution for the treatment of prolonged, acute, convulsive seizures in infants, toddlers, children and adolescents (from 3 months to 18 years of age) designed to be used by care givers in out of hospital settings.  BUCCOLAM must only be used by parents/care givers where the patient has been diagnosed to have epilepsy.  For infants 3–6 months of age treatment should be in a hospital setting where monitoring is possible and resuscitation equipment is available.  BUCCOLAM received a positive outcome from the European Union Centralised Procedure in June 2011 resulting in Marketing Authorization approvals in all EU member states.  BUCCOLAM was the first Paediatric Use Marketing Authorisation (PUMA) to be approved in Europe (in September 2011).  PUMA for BUCCOLAM provides doctors and pharmacists the opportunity to prescribe and dispense a product for children where the quality, safety, and efficacy have been independently assessed, transparently and publicly, and the product determined to be of appropriate quality and the benefit-risk favourable.  Additionally, PUMA gives 8 years of data exclusivity plus an additional 2 years of marketing exclusivity to encourage the development of medicines for children.  BUCCOLAM is launched and marketed in UK, Ireland, France, Nordics, Spain, Germany, Italy, Israel and Greece.  BUCCOLAM is supplied in pre-filled, ready-to-use, unit-dose preparation, oral syringes.
 

 
13

 


 
Treatments for Ulcerative Colitis (“UC”)
 
UC 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). UC 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 UC 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 bioequivalence guidelines 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 other countries, at December 31, 2014, LIALDA/MEZAVANT was commercially available in 19 countries either directly or through distributor arrangements. LIALDA is marketed in certain territories outside the US by Shire under the trade name MEZAVANT and MEZAVANT XL.
 
Litigation proceedings relating to the Company’s LIALDA patents are in progress. For further information see ITEM 3: Legal Proceedings and Note 18, “Commitments and Contingencies, Legal and other 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 2012, the FDA issued draft bioequivalence guidelines for generic approvals of orally-delivered delayed or extended-release mesalamine-based drugs (including LIALDA and PENTASA).
 
Treatments for 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, 2014 RESOLOR was available in 18 EU countries.
 
On January 10, 2012 Shire announced that it had acquired the rights to develop and market RESOLOR in the US pursuant to an agreement with Janssen Pharmaceutica N.V., part of the J&J Group.
 

 
14

 



 
Treatments for Rare Diseases
 
A rare disease is a life-threatening or chronically debilitating condition affecting a limited number of patients. It is defined as rare in Europe when fewer than 5 in 10,000 people are affected, and in the US when fewer than 200,000 people are affected (Aronson J. Br J Clin Pharmacol 2006). Although rare diseases affect only a small number of people, collectively they impact millions of patients and their families. Globally, an estimated 350 million people – almost five percent of the world’s population – are living with a rare disease (Global Genes. Rare diseases: facts and statistics). There are approximately 7,000 rare diseases identified, of which 80% are genetic (Engel PA. Journal of Rare Disorders 2013 / Global Genes. Rare diseases: facts and statistics).
 
Compared to widespread conditions that strike hundreds of millions of people, rare diseases can lack similar levels of interest amongst the general public and medical/research communities (Shire Impact Report). Many people with a rare disease continue to experience low quality of life, high levels of disability, and may be at risk of early death due to delay in diagnosis or misdiagnosis (EURODIS. The voice of 12,000 patients). Effective treatments are available for only about 1% of rare diseases (Rollet P. Orphanet J Rare Dis 2013). These untreated diseases impose very high societal, emotional and economic costs.
 
REPLAGAL
 
REPLAGAL is marketed for the treatment of Fabry disease outside of the US. 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, 2014 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. 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 Patient Protection and Affordable Care Act (“PPACA” or “ACA”).
 
ELAPRASE received approval from the MHLW in Japan in October 2007. As part of an agreement with Genzyme, Genzyme manages the sales and distribution of ELAPRASE in Japan as well as certain other countries in the Asia Pacific region.
 
At December 31, 2014 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 has been granted orphan drug status in the EU with up to ten year’s market exclusivity from August 2010. VPRIV also benefits from the 12 years of data exclusivity in the US from the date of grant of registration given to innovator biologics under the ACA.
 

 
15

 
 
 
At December 31, 2014 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, 2014 FIRAZYR was approved in 38 countries.
 
CINRYZE
 
CINRYZE is a C1 esterase inhibitor therapy for routine prophylaxis against HAE, also known as C1 inhibitor (C1-INH) deficiency. CINRYZE is marketed and sold in the US for routine prophylaxis against HAE attacks in adolescent and adult patients with HAE. CINRYZE has been granted orphan drug exclusivity by the FDA, providing it with up to 7 years market exclusivity in the US from October 2008. CINRYZE 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 ACA from October 2008. In June 2011, marketing authorization in the EU was granted for CINRYZE in adults and adolescents with HAE for routine prevention, pre-procedure prevention and acute treatment of angioedema attacks. The approval also includes a self-administration option for appropriately trained patients.
 
At December 31, 2014 CINRYZE was approved in 36 countries.
 
Treatments for Other therapeutic areas
 
FOSRENOL
 
FOSRENOL is a phosphate binder that is indicated for use in patients with 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 Chronic kidney disease (“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 and was approved in the US in 2014.
 
At December 31, 2014 FOSRENOL was approved in 48 countries.
 
XAGRID/ AGRYLIN
 
XAGRID is an orphan medicinal product which 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. In November 2014, the orphan exclusivity was extended for an additional two years to November 2016 under the EU Pediatric Regulation.
 
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 2005.
 
At December 31, 2014 XAGRID/AGRYLIN was approved in 47 countries.
 

 
16

 


 
PLENADREN
 
Adrenal insufficiency (AI) is a rare, chronic and potentially fatal endocrine disorder characterised by failure in the production of the hormone cortisol. AI affects less than 4.5 in 10,000 people in Europe1,2, but can lead to serious, life-threatening conditions such as cardiovascular, malignant or infectious diseases, as well as disorders which impact on health and quality of life. The many symptoms of AI include fatigue, anorexia, weight-loss, fever, muscle weakness, abdominal pains, dizziness and headaches. To survive, AI patients need replacement therapy with glucocorticoids (usually hydrocortisone) and because it is a chronic condition, they require this life-saving therapy throughout their lives3.
 
PLENADREN is indicated for the treatment of adrenal insufficiency in adults in the since 2011.  It is a novel, once daily hydrocortisone, dual-release tablet, designed to better mimic the body's natural cortisol production compared to standard treatment. PLENADREN is proven to be effective and well tolerated compared to standard therapy, demonstrating a delivery of cortisol that is more in line with the body's own cortisol profile, thus avoiding the unphysiological cortisol peaks seen with standard glucocorticoid therapy.  These peaks are thought to be associated with an increased risk of morbidity and premature mortality.
 
1 Laureti S, Vecchi L, Santeusanio F, Falorni A. Is the Prevalence of Addison's Disease Underestimated? J Clin Endocrinol Metab. 1999 May;84(5):1762.
2 Regal M, Páramo C, Sierra JM, García-Mayor RV. Prevalence and Incidence of Hypopituitarism in an Adult Caucasian Population in Northwestern Spain. Clin Endocrinol (Oxf). 2001;55:735–740
3 Arlt W, Allolio B. Adrenal insufficiency. Lancet. 2003 May 31;361(9372):1881-93.

 
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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 2015 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.
 
INTUNIV
 
Commencing December 1, 2014 Shire is entitled to royalties from Actavis’ sales of its generic version of INTUNIV, for 180 days from launch. Such sales will require the payment of a royalty of 25% of gross profits to Shire during the 180 day period of Actavis’ exclusivity, which will be between December 1, 2014 and May 21, 2015.
 
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.
 

 
18

 


 
Products under development
 
The Company focuses its development resources on projects in a number of therapeutic areas, including rare diseases, neuroscience, ophthalmics, hematology and GI, and focuses its early development projects primarily on rare diseases. Total R&D expenditures (including impairment charges and depreciation) of $1,067.5 million, $933.4 million and $953.0 million were incurred in the years ended December 31, 2014, 2013 and 2012, respectively.
 
The table below lists the Company’s products in clinical development and registration as of December 31, 2014 by stage of development indicating the most advanced development status reached in major markets and the Company’s territorial rights in respect of each product candidate. If these product candidates are ultimately approved and marketed, they may benefit from patent and/or other forms of exclusivity, as described in more detail in the sections headed “Intellectual property” and “Government Regulation” in this ITEM 1. Some of the patents (or their analogous foreign patent applications or foreign granted patents) listed in the table on pages 25-26 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, 2014
 
The Company’s territorial rights
INTUNIV
ADHD in children and adolescents
 
Registration in EU (regulatory submission in Q1 2014)
 
Global
           
VYVANSE (lisdexamfetamine dimesylate)
BED in adults
 
Registration in US (regulatory submission in Q3 2014)
 
Global(1)
           
SHP606
Treatment of Dry Eye Disease (“DED”)
 
Phase 3 in US (entered Phase 3 in Q4 2012)
 
Global
           
SHP465
Treatment of ADHD in adults
 
Phase 3 in US (originally entered Phase 3 in 2005)
 
US
           
FIRAZYR
ACE inhibitor-induced Angioedema (“ACE-1 AE”)
 
Phase 3 in US (entered Phase 3 in Q4 2013)
 
Global
           
FIRAZYR
HAE
 
Phase 3-ready in Japan (entered Phase 3 in Q1 2015)
 
Global
           
SHP555 (prucalopride)
Chronic constipation in Males
 
Phase 3 in EU (entered Phase 3 in Q4 2010)
Phase 3-ready  in US
 
US and EU
           
INTUNIV
ADHD in children and adolescents
 
Phase 3 in Japan (entered Phase 3 in Q2 2013)
 
Global(2)
           
SHP616 (CINRYZE)
Prophylaxis and acute treatment of angioedema
 
Phase 3-ready in Japan
 
US, EU and Japan
           
LDX (lisdexamfetamine dimesylate)
ADHD in children and adolescents
 
Phase 2 in Japan
 
Global(2)
           
SHP602
Chronic Iron-overload
(on clinical hold)
 
Phase 2
 
Global
           
SHP607
Retinopathy of Prematurity (“ROP”)
 
Phase 2
 
Global
           
SHP609
Hunter syndrome with
CNS symptoms
 
Phase 2/3
 
Global (3)
 
 
 
19

 
 
 
SHP610
Sanfilippo A Syndrome (MPS IIIA)
 
Phase 2b
 
Global(3)
           
SHP620
Treatment of cytomegalovirus infection (“CMV”) in transplant patients
 
Phase 2
 
Global
           
SHP625 (formerly LUM001)
Treatment of cholestatic liver diseases
 
Phase 2
 
US and EU
           
SHP611
Metachromatic Leukodystrophy (“MLD”)
 
Phase 1/2
 
Global
           
SHP616 (CINRYZE SC)
Routine prophylaxis against HAE attacks in adolescent and adult patients by sub-cutaneous injection
 
Phase 1
 
Global
SHP616 (CINRYZE-life cycle management and new uses)
Acute Neuromyelitis Optica (“NMO”), and Paroxysmal Nocturnal Hemoglobinuria (“PNH”),
 
Phase 1
 
Global
SHP616 (CINRYZE-life cycle management and new uses)
Acute Antibody Mediated Rejection (“AMR”)
 
Phase 2
 
Global
           
SHP622 (formerly VP 20629)
Treatment of Friedreich’s Ataxia (“FA”)
 
Phase 1
 
Global
           
SHP626 (formerly LUM002)
Treatment of nonalcoholic steatohepatitis (“NASH”)
 
Phase 1
 
Global
SHP627(formerly FT001)
Focal Segmental Glomerulosclerosis
 
Phase 1b
 
Global

 
(1)
FDA approval obtained on January 30, 2015.
 
(2)
Under co-development with Shionogi in Japan as a result of a license and collaboration agreement.
 
(3)
Genzyme has rights to manage marketing and distribution in Japan and certain other Asia Pacific countries under a license with Shire.


Products in registration as at December 31, 2014
 
INTUNIV for the treatment of ADHD in the EU
 
In March 2014, the Company announced the acceptance of submission of an MAA by the EMA for once-daily, non-stimulant guanfacine extended release for the treatment of ADHD in children/adolescents aged 6-17 years.
 
VYVANSE for the treatment of BED
 
In November 2013, the Company reported positive top-line results from two identically designed randomized placebo-controlled Phase 3 studies evaluating the efficacy and safety of VYVANSE versus placebo in adults with BED. In both studies VYVANSE was found to be statistically superior to placebo on the primary efficacy analysis (p-value <0.001) of the change from baseline at weeks 11 to 12 in terms of number of binge days per week. The safety for VYVANSE in these two studies appears to be generally consistent with the known profile established in studies in adults with ADHD. On September 15, 2014, Shire announced that the FDA had accepted for filing with priority review a sNDA for VYVANSE as a treatment for adults with BED. On January 30, 2015 the FDA approved VYVANSE for the treatment of moderate to severe BED in adults.

 
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Products in clinical development as at December 31, 2014

Phase 3 and Phase 3-ready
 
SHP606 (lifitegrast) for the treatment of DED
 
Following a meeting with the FDA, on May 16, 2014 Shire announced that it intends to submit an NDA for SHP606 in the first quarter of 2015 as a treatment for the signs and symptoms of DED in adults. In parallel to preparing for the NDA submission, Shire is conducting a Phase 3 safety and efficacy study (OPUS-3) in support of a potential US label and labels in international markets. OPUS-3 is a multicenter, randomized, double-masked, placebo-controlled, parallel arm study with a 14 day open-label placebo screening run-in period followed by a 12 week randomized, masked treatment period with a primary efficacy endpoint in subjective patient reported symptoms of dry eye disease, eye dryness score.
 
On April 30, 2014 Shire announced top-line results from the prospective, randomized, double-masked, placebo-controlled SONATA trial which indicated no ocular or drug-related serious adverse events. The safety data indicated in the SONATA trial was entirely consistent with that observed in the Phase 2, OPUS-1 and OPUS-2 studies for lifitegrast. Additional data and analyses will be submitted for presentation at upcoming medical meetings.
 
SHP465 for the treatment of ADHD in adults
 
Shire’s NDA for SHP465 was previously submitted in 2006 to support the use of SHP465 as a longer-acting, once-daily treatment for ADHD in adults. With the growing adult ADHD population there is now a larger patient population and Shire expects a greater commercial need for this type of product than in 2006. SHP465 (mixed salts of a single entity amphetamine) capsules provide an extended-release of amphetamines to provide coverage of ADHD symptoms for adults throughout the day.  On October 9, 2014 Shire announced that it had received further guidance from the FDA on the regulatory path for SHP465. After a series of follow-up discussions, the FDA has now clarified that additional pediatric data would be required for resubmission of SHP465.
 
FIRAZYR for the treatment of ACE-I AE
 
A Phase 3 clinical trial to assess the efficacy of FIRAZYR for the treatment of ACE-I AE was initiated in the fourth quarter of 2013 and is ongoing.
 
FIRAZYR for the treatment of HAE in Japan
 
Shire plans to initiate a Phase 3 trial to evaluate the efficacy and safety of FIRAZYR for the treatment of HAE in Japanese patients in 2015.
 
SHP555 (prucalopride; marketed as RESOLOR in the EU) for the treatment of chronic constipation in the US
 
On January 10, 2012, Shire announced that it had acquired the rights to develop and market prucalopride in the US in an agreement with Janssen Pharmaceutica N.V. Discussions have been conducted with the FDA and an NDA submission pathway has been agreed. Planning is underway to confirm Phase 3 program activities and timelines. 
 
INTUNIV for the treatment of ADHD in Japan
 
Under a collaboration agreement, Shionogi and Shire will co-develop and sell treatments for ADHD in Japan, including INTUNIV. A Phase 3 clinical program to evaluate the efficacy and safety of INTUNIV in Japanese patients aged 6 to 17 was initiated in the second quarter of 2013.
 
SHP616 (CINRYZE) for routine prophylaxis against HAE attacks in adolescent and adult patients in Japan
 
CINRYZE is indicated in the US for prophylaxis and in the EU for both prophylaxis and acute treatment of angioedema attacks in adolescent and adult patients with HAE. Based on feedback from the Pharmaceutical and Medical Devices Agency (“PMDA”), a Clinical Trial Notification (“CTN”) was resubmitted and approved on October 2, 2014.  The Company plans to initiate a Phase 3 trial in the first quarter of 2015.
 
Phase 2

LDX1 for the treatment of ADHD in Japan
 
Under a collaboration agreement, Shionogi and Shire will co-develop and sell ADHD products in Japan, including LDX. A Phase 2 clinical program to evaluate the efficacy and safety of LDX in Japanese patients aged 6 to 17 was initiated in the second quarter of 2013 and is ongoing.
 
1.
Currently marketed as VYVANSE in the US and ELVANSE in certain countries in the EU for the treatment of ADHD.
 

 
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SHP602 iron chelating agent for the treatment of iron overload secondary to chronic transfusion
 
A Phase 2 trial in pediatric and adult patients with transfusion iron overload is currently on clinical hold as Shire evaluates nonclinical toxicology findings. The potential relevance of these findings to humans, if any, is unknown.  This product has received orphan drug designation in both the US and EU for the treatment of chronic iron overload requiring chelation therapy.
 
SHP607 for the prevention of ROP
 
SHP607 is in development as a protein replacement therapy for the preventative treatment of ROP, a rare eye disorder associated with premature birth. In December 2014 Shire received notification that SHP607 was granted Fast Track designation by the FDA.  In addition, this product has been granted orphan drug designation in both the US and EU. A Phase 2 clinical trial is currently ongoing.
 
SHP609 for the treatment of Hunter syndrome with CNS symptoms
 
SHP609 is in development as an enzyme replacement therapy (“ERT”) delivered intrathecally for Hunter syndrome patients with cognitive impairment. In January 2015 the FDA granted SHP609 Fast Track designation.  In addition, this product has been granted orphan designation in the US. The Company initiated a pivotal Phase 2/3 clinical trial in the fourth quarter of 2013 which is ongoing.
 
SHP610 for Sanfilippo A syndrome (Mucopolysaccharidosis IIIA)
 
SHP610 is in development as an ERT delivered intrathecally for the treatment of Sanfilippo A syndrome, a Lysosomal Storage Disorder. The Company initiated a Phase 1/2 clinical trial in August 2010 which has now completed. Shire initiated a Phase 2b clinical trial for SHP610, which is designed to establish clinical proof of concept. The product has been granted orphan drug designation in the US and in the EU.
 
SHP620 (maribavir) for the treatment of CMV in transplant patients
 
SHP620 was acquired as part of the acquisition of ViroPharma on January 24, 2014. Shire has completed two Phase 2 studies in transplant recipients. The first trial was in first-line treatment of asymptomatic CMV viremia in transplant recipients and the results of this study showed that maribavir, at all doses, was at least as effective as valganciclovir in the reduction of circulating CMV to below the limits of assay detection (undetectable plasma CMV). The second study recently completed was for the treatment of resistant/refractory CMV infection/disease in transplant recipients. The purpose of this study was to determine whether maribavir is efficacious and safe in patients with disease which is resistant or refractory to the standard of care CMV therapy (e.g., valganciclovir, foscarnet). This study also showed that maribavir, at all doses, was effective at lowering CMV to below the limits of assay detection. Approximately two-thirds of patients across the maribavir treatment groups achieved an undetectable plasma CMV DNA (viral load) within 6 weeks. This product has been granted orphan drug designation in both the US and EU.
 
SHP625 (formerly LUM001) for the treatment of cholestatic liver disease
 
SHP625 was acquired as part of the recent acquisition of Lumena. Shire is currently conducting Phase 2 studies in the following indications:  Alagille Syndrome, Progressive Familial Intrahepatic Cholestasis, Primary Biliary Cirrhosis, and Primary Sclerosing Cholangitis. This product has been granted orphan drug designation both in the US and EU.
 
SHP616 (CINRYZE) for the treatment of AMR
 
A Phase 2 study for the treatment of AMR with SHP616 was completed in 18 patients. Shire has received FDA feedback and Shire plans to initiate a Phase 2/3 study in 2015.
 
Phase 1
 
SHP611 for the treatment of MLD
 
SHP611 is in development as an ERT delivered intrathecally for the treatment of the late infantile form of MLD. This product has been granted orphan drug designation in the US and the EU. The Company initiated a Phase 1/2 clinical trial in August 2012. This trial is fully enrolled and is ongoing.
 
SHP616 (CINRYZE) life cycle management and new uses
 
Shire is pursuing additional new formulations of CINRYZE for routine prophylaxis against HAE attacks in adolescent and adult patients including a subcutaneous formulation.  In addition, Shire is further considering opportunities to pursue additional therapeutic indications that may involve the C1 Inhibitor.  These new uses include NMO, PNH, and AMR.   In NMO, a Phase 1b investigator sponsored trial study was completed in 10 patients for acute therapy, and Shire plans to solicit FDA feedback in the first quarter of 2015 on advancing to Phase 3.  In PNH, an ex-vivo POC study in 6 patients has been completed, and Shire plans to advance to IND filing in 2015 based on the results of an additional pre-clinical study.  
 

 
22

 


 
SHP622 (formerly VP 20629) for the treatment of Friedreich’s Ataxia (“FA”)
 
SHP622 is in development for the treatment of Friedreich’s Ataxia and was acquired as part of the acquisition of ViroPharma.  This product is a naturally occurring small molecular weight drug compound that prevents oxidative stress OX1 (indole-3-propionic acid) by a combination of hydroxyl radical scavenging activity and metal chelation. Phase 1 studies in healthy adults were completed in 2010. The drug was found to be generally well tolerated, and the pharmacokinetics revealed that the drug was rapidly absorbed and distributed in the body after oral administration. ViroPharma launched a Phase 1b trial of its VP20629 in adults with FA in September 2013. This trial is ongoing.
 
SHP626 (formerly LUM002) for the treatment of nonalcoholic steatohepatitis (“NASH”)
 
SHP626 was acquired as part of the acquisition of Lumena and is in development for the treatment of NASH, a common and often “silent” liver disease characterized by fat deposits in the liver and inflammation which can progress to significant fibrosis.  A US IND was approved by the FDA in the fourth quarter of 2014, and the Company expects to initiate a Phase 1b multiple dose trial in the first half of 2015.
 
SHP627 (formerly FT001) for the treatment of focal segmental glomerulosclerosis (“FSGS”)
 
On July 4, 2014 Shire completed its acquisition of Fibrotech, an Australian biopharmaceutical company developing a new class of orally available drugs with a novel mechanism of action which has the potential to address both the inflammatory and fibrotic components of disease processes. SHP627 has completed a Phase 1a study in healthy volunteers and is currently in a Phase 1b study in patients with diabetic nephropathy. The first Phase 2 study is expected to be initiated in FSGS patients in 2016.
 
Other pre-clinical development projects
 
A number of additional early development projects, focused on Rare Diseases, are underway in various stages of pre-clinical development.
 

 
23

 


Manufacturing and distribution
 
Active pharmaceutical ingredient (“API”) sourcing
 
The Company sources API from third party suppliers for VYVANSE, INTUNIV, ADDERALL XR, LIALDA, FOSRENOL, PENTASA, XAGRID, CINRYZE and FIRAZYR. Shire has manufacturing capability for agalsidase alfa, idursulfase and velaglucerase alfa at its protein manufacturing plants in Cambridge, and Lexington, Massachusetts, US for REPLAGAL, ELAPRASE and VPRIV, respectively.
 
The Company currently has dual sources of API for VPRIV, VYVANSE, ADDERALL XR, LIALDA and PENTASA and is qualifying a second source for INTUNIV. The Company has two locations approved for the purification of REPLAGAL drug substance. The Company manages the risks associated with reliance on single sources of API by carrying additional inventories or developing second sources of supply.
 
CINRYZE API is derived from human plasma sourced from commercial plasma suppliers. The sourcing of plasma and the production of products derived from plasma are regulated extensively by the FDA, the EMA and other medical product and health care regulatory agencies. Shire relies on a combination of sources for plasma including long term supply agreements and periodic “spot purchases” of plasma from third party plasma suppliers.
 
Finished Product Manufacturing
 
The Company sources its products: VYVANSE, INTUNIV, ADDERALL XR, LIALDA, PENTASA, FOSRENOL, EQUASYM, CINRYZE, and XAGRID from third party contract manufacturers. The finished products for: REPLAGAL, ELAPRASE, VPRIV and FIRAZYR 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 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.
 
Distribution
 
The Company’s US distribution center, 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: VYVANSE, INTUNIV, ADDERALL XR, LIALDA, PENTASA, FOSRENOL and XAGRID to the US market 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 products: REPLAGAL, ELAPRASE, VPRIV and FIRAZYR for the US market is contracted out to specialist third party contractors. 
 
Outside of the US, physical distribution of Company’s products is either contracted out to third parties (where the Company has local operations) or facilitated via distribution agreements (where the Company does not have local operations).
 
Material customers
 
Shire’s three largest trade customers are McKesson Corp, Cardinal Health, Inc., and AmerisourceBergen which are based in the US. In 2014, these wholesale customers accounted for approximately 18%, 17% and 13% of product sales, respectively.
 

 
24

 


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 Company’s currently marketed and potential future products, such as those for rare diseases, are small and where possible the Company has sought and will seek orphan drug designation for products directed to these markets which, if granted, provides regulatory exclusivity for 7 years in the US and 10 years in the EU from the date of product approval (see “Government Regulation” below).
 
In the regular course of business, the Company’s patents may be challenged by third parties. The Company is a party to litigation or other proceedings relating to intellectual property rights. Details of ongoing litigation are provided in ITEM 3: Legal Proceedings and Note 18, “Commitments and Contingencies, Legal and other 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 European Patent (“EP”) patents pertaining to the Company’s more significant revenue-generating products and certain products from which the Company receives a royalty, which are owned by or licensed to the Company and that are relevant 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, 2015
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 1538202
EP 0935651
EP 2186902
March 31, 2015
September 12, 2017
September 12, 2017
September 13, 2016
September 12, 2017
September 12, 2017
March 9, 2020
RESOLOR
EP 807110
November 16, 2015
VPRIV
US 6,566,099
US 7,138,262
US 7,833,766
EP 1986612
September 12, 2017
July 6, 2022
May 14, 2029
February 6, 2027
 
 
 
25

 

 
 
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 6,180,639
July 30, 2018

 

 
 
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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.
 
Markets for the treatment of Neuroscience diseases
 
ADHD market
 
Competition in the US ADHD market has increased with the launch of competing products in recent years, including authorized generic and generic versions of CONCERTA and RITALIN LA, ADDERALL XR, INTUNIV, KAPVAY (twice daily, clonidine extended release), FOCALIN XR, and QUILLIVANT, a liquid methylphenidate. Shire’s share of the US ADHD prescription market in December 2014 was 23.9% (compared to 25.7% in December 2013). Overall the US ADHD prescription market grew by 4.9% in the year ended December 31, 2014 (compared to 6.2% in the same period in 2013).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 VYVANSE and INTUNIV 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 33.4% of the ADHD market (IMS NPA, December 2014) are showing strong growth in the US ADHD market, growing 9.5% in the year from December 31, 2013 to December 31, 2014.
 
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 is launching ELVANSE (known as TYVENSE in Ireland), the ADHD market size was approximately $490 million (moving annual total (“MAT”) October 2014), with annual growth of over 4.2% compared to the same period in 2013.
 
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.
 
Markets for the treatment of GI diseases
 
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 DELZICOL, ASACOL and ASACOL HD/ASACOL 800 (Actavis, Tillots and various other licensees), APRISO (Salix), PENTASA (marketed by Ferring Pharmaceutical, 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 oral 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. Additional competitor products in this category include CONSTELLA (guanylate cyclase-C agonist; Almirall S.A., Ironwood Pharmaceuticals Inc) approved by the EMA for the treatment of moderate to severe irritable bowel syndrome with constipation (IBS-C) and AMITIZA (chloride channel antagonist; Sucampo Pharmaceuticals, Inc.) approved for the treatment of chronic idiopathic constipation. The Company is aware of other therapies for the treatment of chronic constipation and IBS-C being developed.
 

 
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Markets for the treatment of rare genetic diseases
 
REPLAGAL competes with Genzyme’s FABRAZYME in markets outside the US. Shire is aware of the development of certain compounds to treat Fabry disease by Amicus, Genzyme, Protalix, JCR Pharmaceuticals Co. Ltd, and Isu-Abxis.
 
VPRIV competes with Genzyme’s CEREZYME and CERDELGA, Actelion’s ZAVESCA and Protalix’s ELELYSO (which was refused registration in the EU and is marketed by Pfizer outside of Israel).  Shire is aware of a development program in Gaucher by Protalix. Shire is also aware of four companies that have 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.
 
FIRAZYR competes in the US with BERINERT, Dyax Corporation’s KALBITOR and Salix’s RUCONEST (licensed from Pharming Group N.V.) for acute treatment of HAE. FIRAZYR competes in Europe with CSL Behring’s BERINERT P and Pharming Group N.V.’s RUCONEST. In other markets, FIRAZYR competes with BERINERT.
 
CINRYZE competes in US and non-US markets with generic androgens for prophylaxis of HAE. In non-US markets, CINRYZE is also indicated for acute treatment and short-term prophylaxis of HAE.
 
Shire is aware of a number of products in development for treatment and prophylaxis of HAE, including a subcutaneous formulation of BERINERT, a long-acting injectable kalikrein inhibitor (Dyax) and an oral kalikrein inhibitor (Biocryst). In addition, a number of companies have molecules in discovery phase.
 

 
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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 rare disease products.
 
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.
 

 
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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 (ADDERALL XR, 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 payers 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 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 initiatives exist in the EU. The Company cannot predict the outcome of such initiatives, but will work to maintain patient access to its products and to oppose price constraints. Additionally, legislation is being debated at the federal and state level in the 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.  Several local US jurisdictions, including the King County of Washington State and Alameda County in California, have imposed drug-disposal responsibilities and fees on drug manufacturers.  Depending on the outcome of court cases, these additional costs of doing business in the US may extend to other localities. The US market is a litigious one, and several agencies, including the Office of Inspector General, Department of Justice and Drug Enforcement Agency have been stepping up their enforcement activities as part of the ACA, leading to the imposition of an increasing number of Corporate Integrity Agreements (CIA) with pharmaceutical and biotechnology companies as part of ultimate settlements (see reference to Shire’s CIA under Note 18, “Commitments and Contingencies, Legal and other proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K).
 
Similar regulatory and legislative considerations are encountered in Europe and other international markets where governments regulate pharmaceutical prices and patient reimbursement levels. The differing approach to price regulation has led to some parallel trade within the EU where Shire’s products are imported into markets with higher prices from markets with lower prices. Exploitation of price differences between countries in this way can adversely impact domestic sales in those markets with higher prices.
 
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 payers 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.
 
In the US:
 
 
·
Commercial Managed Care. Commercial payers negotiate the pricing of products to control their costs, including the use of formularies to encourage members to utilize preferred products with favorable terms.  Exclusion from a formulary, or a disfavored formulary position, can reduce product usage in the payer’s patient population. The consolidation of Pharmacy Benefits Managers (“PBMs”) may result in increased pricing pressure from the larger purchasing power of such consolidated entities.  Whether manufacturers can continue to issue coupons for managed care members, without being removed from the plan’s formulary, will also affect utilization of a manufacturer’s drugs.  Although the Secretary of Health and Human Services (“HHS”) has approved the use of coupons for health exchange (“HIX”) plans, several groups are fighting the implementation of the guidance. Overall drug usage could increase due to the expansion of covered lives under the PPACA albeit with greater rebate liability.
 

 
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·
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. Due to changes within the ACA, utilization adjudicated by commercial Managed Medicaid payers is also eligible for the mandated federal rebates, which were traditionally paid only on fee for service utilization. Other states manage their own formulary and require manufacturers to pay additional “state supplemental” rebates for positioning on its preferred drug list.
 
 
·
Medicare.  Medicare reimbursement rates to physicians for injectable drugs like Shire’s orphan drugs have been reduced from 106% of Average Sales Price (“ASP”) to approximately 104% of ASP, and may decrease further. The Centers for Medicare and Medicaid Services (“CMS”) are also increasingly bundling drug reimbursement into procedure costs, which can severely decrease the reimbursement rates to physicians for some manufacturers’ drugs, biologicals and medical devices.  As part of the American Recovery and Reinvestment Act of 2009 (“ARRA”), Medicare reimbursement payments to eligible professionals who are not meaningful users of Certified Electronic Health Record (“EHR”) Technology will be reduced.
 
 
·
ACA.  The rate of implementation of the Medicaid expansion, HIX and Accountable Care Organizations (“ACO”) varies tremendously on a state-by-state basis.  It is not possible to predict the overall increases in Medicaid, Managed Medicaid and HIX business, and the cost for Shire specifically.  Depending on HHS’ ability to rectify the HIX’s technology issues, and HHS’ flexibility with states asking for alternative approaches to Medicaid expansion, the ACA expansion in covered lives could be severely reduced.
 
 
·
Dual-eligibles” are those individuals that qualify for both Medicare and Medicaid.  Although CMS has 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 pharmaceutical 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”), as well as AMP-based Federal Upper Limits (“FUL”) 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 payer utilization of Shire’s products.
 
In the EU, price controls and non-reimbursement for new, highly priced medicines have been experienced. 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 assesses 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 has delayed and, occasionally, prevented product launches. In some countries regional authorities are seeking to constrain drug prices and uptake. As such the Company’s estimated product launches may be delayed.  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 economically viable reimbursement profile.
 

 
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Responsibility
 
Corporate responsibility (“Responsibility”) is embedded at Shire and is a clear expectation of all employees as part of its culture.  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 Shire’s Board of Directors, championed by the Chief Executive Officer and driven forward by Shire’s senior leaders.
 
In 2014, Shire conducted a materiality assessment with external stakeholders, including patient groups, physicians, investors, media and payers to obtain feedback on and prioritization of Shire’s most important areas of Responsibility. Findings showed that Access to Medicines, Disease Awareness and Transparency are the areas of primary importance to Shire’s stakeholders. These are the areas that have consequently received greatest focus in 2014.
 
A number of senior managers at Shire “sponsor” Responsibility areas  including the priority areas of Access to Medicines, Disease Awareness and Transparency but also 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 twice a year to monitor progress. Shire’s Responsibility team 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 and intranet dedicated to information and ongoing updates on Shire’s work, initiatives and achievements that illustrate Shire’s commitment to Responsibility.
 
Employees
 
The Company’s employees are vital to its success. At December 31, 2014 the Company had 5,016 employees (2013: 5,338 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.
 

 
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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, the time taken to obtain such approvals, the scope of marketing approvals as reflected in the product labels, approval of reimbursement at commercially sustainable prices in those countries where price and reimbursement is negotiated, and safety, efficacy, convenience and cost-effectiveness of the product as compared to competitive products.
 
The Company’s revenues, financial condition or results of operations may be adversely affected if any or all of the following occur:
 
 
·
if the Company’s products, or competitive products, are genericized;
 
 
·
if the prices of the Company’s products 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 physicians’ willingness to prescribe the Company’s products;
 
 
·
if issues arise from clinical trials being conducted for post-marketing purposes or for registration in another country which raise questions or concerns about a product;
 
 
·
if the regulatory agencies in one country act in a way that raises concerns for regulatory agencies or for prescribers or patients in another country;
 
 
·
if patients, payers 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;
 
 
·
if patent protection or other forms of exclusivity are lost or curtailed, or if competitors are able to successfully challenge or circumvent the Company’s patents or other forms of exclusivity (See ITEM 3: Legal Proceedings and Note 18, “Commitments and Contingencies, Legal and other proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K for details of current litigation);
 
 
·
if launches of the Company’s products in new markets are 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 payer 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.
 

 
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Product sales from ADDERALL XR and INTUNIV are subject to generic competition
 
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 also continues to sell the branded version of ADDERALL XR. Actavis makes and markets its own generic versions of ADDERALL XR.
 
In 2013, Shire settled a number of patent lawsuits in the United States against certain companies that had filed for approval of their generic versions of INTUNIV. Under the terms of the settlements, Actavis was granted a license to make and market Actavis' generic versions of INTUNIV in the United States on December 1, 2014. All other parties with whom Shire has settled will be able to enter the market with their respective ANDA-approved products after Actavis’ 180 day exclusivity period has expired.
 
Product sales from INTUNIV have declined as a result of the December 2014 launch of Actavis’ generic versions of INTUNIV and are expected to decline further following the anticipated launches of generic versions of INTUNIV by other companies after Actavis’ 180 day exclusivity period expires.
 
Factors which could cause further or more rapid decline in ADDERALL XR and INTUNIV product sales include:
 
 
·
generic or authorized generic versions of these  products capture more of Shire’s branded market share than expected;
 
 
·
the FDA approves additional ANDAs for generic versions of these  products which, if launched, further reduce branded market share or impact the amount of Shire’s authorized generic product sales;
 
 
·
the production of branded 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 payers; or
 
 
·
there are changes to the level of sales deductions for branded ADDERALL XR or branded INTUNIV for private or public payers.

The failure to obtain and maintain reimbursement, or an adequate level of reimbursement, by third-party payers in a timely manner for the Company's products may affect future revenues, financial condition and results of operations
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. Factors affecting the Company’s ability to obtain and maintain adequate reimbursement for its products include:
 
 
·
higher levels of controls on the use of the Company’s products and/or requirements for additional price concessions mandated or negotiated by managed health care organizations or government authorities;
 
 
·
legislative proposals to reform health care and government insurance programs in many of the Company's markets; and
 
 
·
price controls, unsuccessful government tenders, or non-reimbursement of new medicines or new indications.

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


 
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The Company conducts its own manufacturing operations for certain of its products and is reliant on third party contract manufacturers to manufacture other products and to provide goods and services. Some of the Company’s products or ingredients are only available from a single approved source for manufacture. Any disruption to the supply chain for any of the Company’s products may result in the Company being unable to continue marketing or developing a product or may result in the Company being unable to do so on a commercially viable basis for some period of time.
Although the Company dual-sources certain key products and/or active ingredients, the Company currently relies on a single source for production of the final drug product for each of ADDERALL XR, CINRYZE, FIRAZYR, FOSRENOL, INTUNIV, LIALDA and PENTASA, the Company currently relies on a single active ingredient source for each of ELAPRASE, FIRAZYR, FOSRENOL, INTUNIV and REPLAGAL and also relies on limited third party sources to provide the donated human plasma necessary for the manufacture of CINRYZE. Following the completion of the acquisition of NPS Pharma in the first quarter of 2015, Shire has acquired GATTEX/REVESTIVE, which currently relies on a single active ingredient source and NATPARA/NATPAR, which currently relies on a single source for both production of the final drug product and supply of the active ingredient.
 
The Company may experience supply failures or delays beyond its control if it does not, or 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 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 manufacture its products. If these third parties are unable to manufacture products, or provide these goods and services, in each case in accordance with its respective contractual obligations, the Company’s ability to manage its manufacturing processes or to operate its business, including to continue the development or commercialization of its products as planned or on a commercial basis, may be adversely impacted.
 
The manufacture of the Company’s products is subject to extensive oversight by various regulatory agencies. Regulatory approvals or interventions associated with changes to manufacturing sites, ingredients or manufacturing processes could lead to significant delays, an increase in operating costs, lost product sales, an interruption of research activities or the delay of new product launches
Pharmaceutical and device manufacturing sites must be inspected and approved by regulatory agencies such as the FDA, and similar agencies in other countries. Active ingredients, excipients and packaging materials used in the manufacturing process must be obtained from sources approved by regulatory agencies.
 
The development, approval and manufacturing of the Company's products depend on the ability to procure ingredients and packaging materials from approved sources and for the manufacturing process to be conducted at approved sites. Changes of manufacturer or changes of source of ingredients or packaging materials must generally be approved by the regulatory agencies, which will involve testing and additional inspections to ensure compliance with the applicable regulatory agency’s regulations and standards. The need to qualify a new manufacturer or source of ingredients or packaging materials can take a significant amount of time. Should it become necessary to change a manufacturer or supplier of ingredients or packaging materials, or to qualify an additional supplier, the Company may not be able do so quickly, or at all, which could delay or disrupt the manufacturing process.
 
US-based manufacturers must be registered with the DEA and similar regulatory authorities in other countries if they handle controlled substances. Certain of the Company’s products, including ADDERALL XR and VYVANSE, contain ingredients which are controlled substances subject to quotas managed by the DEA. As a result, the Company’s procurement and production quotas may not be sufficient to meet commercial demand.
 
CINRYZE, ELAPRASE, REPLAGAL and VPRIV are manufactured using highly complex biological processes. The complexity of the manufacturing results in a number of risks, including the risk of microbial contamination. Additionally, CINRYZE is derived from human plasma, and is therefore subject to the risk of biological contamination inherent in plasma-derived products. The sole manufacturer of CINRYZE has received observations on Form 483 and a warning letter from the FDA identifying issues with respect to the manufacturing process for CINRYZE which must be addressed to the satisfaction of the FDA. Any regulatory interventions, in relation to these, or any other issues, if they occur, may delay or disrupt the manufacture of the Company’s products.
 

 
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The failure to obtain regulatory approvals promptly or at all and/or regulatory interventions associated with changes to manufacturing sites, ingredients or manufacturing processes could lead to significant delays, an increase in operating costs, lost product sales, an interruption of research activities, the delay of new product launches or constraints on manufacturing output, all of which could have a material adverse effect on the Company’s revenues, financial condition and results of operations.
 
The Company has a portfolio of products in various stages of research and development. The successful development of these products is highly uncertain and requires significant expenditures and time, and there is no guarantee that these products will receive regulatory approval
Products that initially appear promising in research or development may be delayed or fail to reach later stages of development as:
 
 
·
preclinical or clinical tests may show the product to lack safety or efficacy;
 
 
·
delays may be caused by slow enrollment in clinical studies; regulatory requirements for clinical trial drug supplies; extended length of time to achieve study endpoints; additional time requirements for data analysis or dossier preparation; time required for discussions with regulatory agencies, including regulatory agency requests for additional preclinical or clinical data; 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
 
 
·
submission of an application for regulatory approval of any of the Company’s product candidates may be subjected to lengthy review and ultimately rejected.
 
Success in preclinical and early clinical trials does not ensure that late stage clinical trials will be successful. Clinical results are frequently susceptible to varying interpretations that may delay, limit, or prevent regulatory approvals. The length of time necessary to complete clinical trials and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly and may be difficult to predict. Moreover, once an application is submitted, additional data may be sought by regulators or an application may be rejected. 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. The Company has a range of programs in late stage clinical development. For example, in Phase 3, SHP606 is being developed for the treatment of DED and SHP465 is being developed for the treatment of ADHD in adults.
 
In addition, even if the products receive regulatory approval, they remain subject to ongoing regulatory requirements, including, for example, obligations to conduct additional clinical trials or other non-clinical testing, changes to the product label (which could impact its marketability and prospects for commercial success), new or revised requirements for manufacturing, written notifications to physicians, or product recalls or withdrawals.

The actions of certain customers could affect the Company's ability to sell or market products profitably. Fluctuations in buying or distribution patterns by such customers can adversely affect the Company’s revenues, financial conditions or results of operations
A considerable portion of the Company’s product sales are made to major pharmaceutical wholesale distributors, as well as to large pharmacies, in both the US and Europe. In 2014, for example, 47% of the Company's product sales were attributable to three customers in the US: McKesson Corp., Cardinal Health, Inc and AmerisourceBergen Drug 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 may also be affected by fluctuations in customer buying or distribution patterns. These fluctuations may result from seasonality, pricing, wholesaler inventory objectives, or other factors. A significant portion of the Company's revenues for certain products for treatment of rare diseases are concentrated within a small number of customers. Changes in the buying patterns of those customers may have an adverse effect on the Company's revenues, financial condition or results of operations.

 
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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 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 laws relating to the sale, 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 improper conduct. Any inquiries or investigations into the operations of, or enforcement or other regulatory action against, the Company by such authorities could result in significant defense costs, fines, penalties and injunctive or administrative remedies, distract management to the detriment of the business, result in the exclusion of certain products, or the Company, from government reimbursement programs or subject the Company to regulatory controls or government monitoring of its activities in the future. The Company is subject to certain ongoing investigations by governmental agencies. For further information, see ITEM 3: Legal Proceedings and Note 18, “Commitments and Contingencies, Legal and other proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.

Adverse outcomes in legal matters and other disputes, including Shire’s ability to enforce and defend patents and other intellectual property rights required for its business, could have a material adverse effect on the Company’s revenues, financial condition or results of operations
During the ordinary course of its business the Company may be involved in claims, disputes and litigation with third parties, employees, regulatory agencies, governmental authorities and other parties. The range of matters of a legal nature that might arise is extremely broad but could include, without limitation, intellectual property claims and disputes, product liability claims and disputes, regulatory litigation, contract claims and disputes, employment claims and disputes, and tax or other governmental agency audits and disputes.
 
Any unfavorable outcome in such matters could adversely impact the Company’s ability to develop or commercialize its products, adversely affect the profitability of existing products, subject the Company to significant defense costs, fines, penalties, audit findings and injunctive or administrative remedies, distract management to the detriment of the business, result in the exclusion of certain products, or the Company, from government reimbursement programs or subject the Company to regulatory controls or government monitoring of its activities in the future. Any such outcomes could have a material adverse effect on the Company’s revenue, financial condition or results of operations. For further information see ITEM 3: Legal Proceedings and Note 18, “Commitments and Contingencies, Legal and other proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.
 
The Company faces intense competition for highly qualified personnel from other companies and organizations. The Company is undergoing a corporate reorganization and was the subject of an unsuccessful acquisition proposal and the consequent uncertainty could adversely affect the Company’s ability to attract and/or retain the highly skilled personnel needed for the Company to meet its strategic objectives
The Company relies on recruiting and retaining highly skilled employees to meet its strategic objectives. The Company faces intense competition for highly qualified personnel and the supply of people with the requisite skills may be limited, generally or geographically. The range of skills required and the geographies in which they are required by the Company may also change over time as Shire’s business evolves. The Company’s ongoing One Shire reorganization, which aims to simplify the Company’s organizational structure and streamline operations through two principal locations, Massachusetts and Switzerland, involves changes to, and geographic relocation of, certain skilled roles. The unsuccessful proposed acquisition of the Company by AbbVie in 2014 created uncertainty in the employee population which could lead to further loss of certain skilled employees.  If the Company is unable to retain key personnel or attract new personnel with the requisite skills and experience, it could adversely affect the implementation of the Company’s strategic objectives and ultimately adversely impact the Company’s revenues, financial condition or results of operations.

 
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Failure to achieve the Company’s strategic objectives with respect to the acquisition of NPS Pharma may adversely affect the Company’s financial condition and results of operations
 
On February 21, 2015, Shire completed the acquisition of NPS Pharma for a total cash consideration of approximately $5.2 billion.
 
The acquisition entails various risks, which, if they materialize, may adversely impact Shire’s revenues, financial condition or results of operations.
 
These risks include but are not limited to:
 
 
·
failure to achieve the targeted growth and expected benefits of the acquisition if sales of NPS Pharma products, including GATTEX/REVESTIVE, are lower than anticipated;
 
 
·
failure to successfully commercialize NPS Pharma’s compound NATPARA/NATPAR in the US or to obtain regulatory approval in the EU;
 
 
·
difficulties in integrating NPS Pharma into Shire may lead to the combined company not being able to realize the expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits in the timeframe anticipated, or at all;
 
 
·
undiscovered or unanticipated risks and liabilities, including legal and compliance related liabilities, may emerge after closing the acquisition or may be higher than anticipated;
 
 
·
the Company may be unable to retain key NPS Pharma personnel;
 
 
·
the Company may not be able to retain the existing customers, suppliers and other business partners of NPS Pharma or attract new customers; and
 
 
·
the business of NPS Pharma may be otherwise disrupted by the acquisition, including increased costs and diversion of management time and resources.
 
Any failure to achieve the Company’s strategic objectives with respect to the NPS Pharma acquisition could result in slower growth, higher than expected costs, the recording of asset impairment charges and other actions which could adversely affect the Company’s business, financial condition and results of operations.

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 economic instability of countries in which the Company does business, could have negative consequences for the Company’s business and increase the risk of non-payment by the Company’s customers
 
Growth of the global pharmaceutical market has become increasingly tied to global economic growth. Accordingly a substantial and lasting slowdown of the global economy, or major national economies, could negatively affect growth in the markets in which the Company operates. Such a slowdown, or any resultant austerity measures adopted by governments in response to a slowdown, could result in national governments making significant cuts to their public spending, including national healthcare budgets, or reducing the level of reimbursement they are willing and able to provide to the Company for its products and, as a result, adversely affect the Company’s revenues, financial condition or results of operations.

 
38

 
 
 
A slowdown of a nation’s economy could also lead to financial difficulties for some of the Company’s significant customers, including national governments, and result in a greater risk of delayed payments, defaults or non-payments of outstanding payment obligations by the Company’s customers in that country, which could adversely affect the Company’s revenues, financial condition or results of operations.
 
The Company is subject to evolving and complex tax laws, which may result in additional liabilities that may adversely affect the Company’s financial condition or results of operations.
The Company is subject to evolving and complex tax laws in the jurisdictions in which it operates, and routinely obtains advice on matters, including the tax treatment of the break fee received in connection with AbbVie’s terminated offer for Shire in the current accounting period. Significant judgment is required in determining the Company’s tax liabilities, and the Company’s tax returns are periodically examined by various tax authorities. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its accrual for tax contingencies; however, due to the complexity of tax contingencies, the ultimate resolution of any tax matters may result in payments greater or less than amounts accrued. In addition, the Company may be affected by changes in tax laws, including tax rate changes, new tax laws, and revised tax law interpretations in domestic and foreign jurisdictions.

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, manufacturing, 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 including those resulting from integration into the Company, 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.
 

 
39

 

 
 
The Company also relies on trade secrets and other un-patented proprietary information, which it generally seeks to protect by confidentiality and nondisclosure agreements with its employees, consultants, advisors and partners. These agreements may not effectively prevent disclosure of confidential information and may not provide the Company with an adequate remedy in the event of unauthorized disclosure. In addition, if the Company's employees, scientific consultants or partners develop inventions or processes that may be applicable to the Company's products under development, such inventions and processes will not necessarily become the Company's property, but may remain the property of those persons or their employers.
 
The Company has filed applications to register various trademarks for use in connection with its products in various countries and also, with respect to certain products, relies on the trademarks of third parties. These trademarks may not afford adequate protection or the Company or the third parties may not have the financial resources to enforce their rights under these trademarks which may enable others to use the trademarks and dilute their value.
 
In the regular course of business, the Company is party to litigation or other proceedings relating to intellectual property rights. For details of current intellectual property litigation, See ITEM 3: Legal Proceedings and Note 18, “Commitments and Contingencies, Legal and other proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.
 
The introduction of new products by competitors may impact future revenues
The pharmaceutical, biotechnology and device industries are highly competitive and are characterized by substantial investment in continuous product development and technological change. The Company faces significant competition from large pharmaceutical and biotechnology companies, many of whom have substantially greater resources than the Company. In addition, many of the Company’s competitors have more products and have operated longer in the fields in which the Company competes. A number of companies are pursuing the development of technologies which compete with the Company’s existing products or research programs. These competitors include specialized pharmaceutical firms and large pharmaceutical companies acting either independently or together with other pharmaceutical companies. Furthermore, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection and may establish collaborative arrangements for competitive products or programs. As a result of this competition the Company's products could be rendered obsolete or uneconomic or lose market share following the development of new products, new methods of treatment, or technological advances in manufacturing or production by competitors which could adversely affect the Company’s revenues, financial condition, and results of operations.
 
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.

ITEM 1B: Unresolved Staff Comments
 
None.
 

 
40

 


ITEM 2: Properties
 
The following are the principal premises of the Company, as at December 31, 2014:
 
 
Location
 
 
Use
 
Approximate Square Footage
 
 
Owned or Leased
Dublin, Ireland
 
Office accommodation
 
21,500
 
Leased
             
Lexington, Massachusetts, US
 
Office accommodation, laboratories and manufacturing, warehousing and distribution facility
 
806,115
 
Owned and Leased
             
Chesterbrook, Pennsylvania, US
 
Office accommodation
 
420,000
 
Leased
             
Basingstoke, UK
 
Office accommodation
 
127,000
 
Owned
             
Florence, Kentucky, US
 
Warehousing and distribution facility
 
96,000
 
Leased
             
North Reading, Massachusetts, US
 
Warehousing facility
 
91,676
 
Leased
             
Zug, Switzerland
 
Office accommodation
 
52,000
 
Leased
             
Cambridge, Massachusetts, US
 
Manufacturing facility/Warehouse
 
30,072
 
Leased
             
Sao Paulo, Brazil
 
Office accommodation and Laboratory
 
26,200
 
Leased
             

 
At December 31, 2014 all of the above sites were utilized by the Company. The Company owns or leases premises in a number of other locations in a number of countries around the world.
 

 
41

 


ITEM 3: Legal Proceedings
 
The information required by this Item is incorporated herein by reference to Note 18, “Commitments and Contingencies, Legal and other 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.
 
 

 
 
42

 
 
 
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, 2014
           
1st Quarter
    34.39       28.20  
2nd Quarter
    45.70       28.54  
3rd Quarter
    53.65       45.10  
4th Quarter
    54.55       37.18  
                 
Year to December 31, 2013
               
1st Quarter
    21.53       19.10  
2nd Quarter
    22.13       18.62  
3rd Quarter
    25.93       20.88  
4th Quarter
    28.58       23.81  

The total number of record holders of ordinary shares of Shire on February 13, 2015 was 4,746. 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 13, 2015 the proportion of ordinary shares represented by ADRs was 24% 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, 2014
           
1st Quarter
    171.77       139.18  
2nd Quarter
    235.49       142.83  
3rd Quarter
    262.64       231.98  
4th Quarter
    262.71       170.49  
                 
Year to December 31, 2013
               
1st Quarter
    101.63       89.83  
2nd Quarter
    99.85       86.59  
3rd Quarter
    123.53       94.97  
4th Quarter
    141.29       113.87  

 

 
43

 

 
The number of record holders of ADSs on February 13, 2015 was 1,773. 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.
 
Dividend policy
A first interim dividend for the six months to June 30, 2014 of 3.83 US cents (2.24 pence) per ordinary share, equivalent to 11.49 US cents per ADS, was paid in October 2014. The Board has resolved to pay a second interim dividend of 19.09 US cents (12.7 pence) per ordinary share equivalent to 57.27 US cents per ADS for the six months to December 31, 2014.
 
A first interim dividend for the six months to June 30, 2013 of 3.00 US cents (1.95 pence) per ordinary share, equivalent to 9.00 US cents per ADS, was paid in October 2013. A second interim dividend for the six months to December 31, 2013 of 16.93 US cents (10.21 pence) per ordinary share equivalent to 50.79 US cents per ADS was paid in April 2014.
 
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 dividend.  Dividend growth for the full year will be reviewed by the Board when the second interim dividend is determined. However there is no guarantee that dividends will be declared for any periods.
 
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:
 
 
i)
If a dividend is announced or declared by Shire plc on its ordinary shares, an amount is paid by Old Shire by way of a dividend on the income access share to the Trustee, and such amount is paid by the Trustee to ordinary shareholders who have elected (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.
 

 
44

 

 
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, 2014 Old Shire paid dividends totalling $112.8 million (2013: $91.1 million; 2012: $81.5 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.
 

 
45

 


ITEM 6: Selected financial data
 
The selected consolidated financial data presented below as at December 31, 2014 and 2013 and for the years to December 31, 2014, 2013 and 2012 were derived from the audited consolidated financial statements of the Company, included herein.
 
The selected consolidated financial data presented below as at December 31, 2012, 2011 and 2010 and for the years to December 31, 2011 and 2010 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,
 
2014
   
2013
   
2012
   
2011
   
2010
 
      $’M       $’M       $’M       $’M       $’M  
Statements of Income:
                                       
Total revenues
    6,022.1       4,934.3       4,527.4       4,158.1       3,471.1  
Gain/(loss) on sale of product rights
    88.2       15.9       18.1       (6.0 )     16.5  
Other operating expenses(1)
    (4,412.3 )     (3,216.7 )     (3,500.3 )     (3,016.3 )     (2,693.5 )
                                         
Operating income from continuing operations
    1,698.0       1,733.5       1,045.2       1,135.8       794.1  
Interest income
    24.7       2.1       3.0       1.9       2.4  
Interest expense
    (30.8 )     (38.1 )     (38.2 )     (39.1 )     (35.1 )
Other income/ (expenses), net
    8.9       (3.9 )     (2.2 )     18.5       7.9  
Receipt of break fee(2)
    1,635.4       -       -       -       -  
                                         
Income from continuing operations before income taxes and equity in earnings of equity method investees
    3,336.2       1,693.6       1,007.8       1,117.1       769.3  
Income taxes
    (56.1 )     (277.9 )     (203.1 )     (236.9 )     (182.7 )
Equity in earnings of equity method investees, net of taxes
    2.7       3.9       1.0       2.5       1.4  
                                         
Income from continuing operations, net of tax
    3,282.8       1,419.6       805.7       882.7       588.0  
Gain/ (loss) from discontinued operations, net of tax
    122.7       (754.5 )     (60.3 )     (17.7 )     -  
                                         
Net income
    3,405.5       665.1       745.4       865.0       588.0  
                                         
Earnings per share – basic
                                       
Income from continuing operations
    559.6 c     257.2 c     145.1 c     160.1 c     107.7 c
Gain/ (loss) from discontinued operations
    20.9 c     (136.7c )     (10.9c )     (3.2c )     -  
                                         
Earnings per ordinary share - basic
    580.5 c     120.5 c     134.2 c     156.9 c     107.7 c
                                         
Earnings per share – diluted
                                       
Income from continuing operations
    555.2 c     245.3 c     141.0 c     153.9 c     105.3 c
Gain/(loss) from discontinued operations
    20.8 c     (127.8c )     (10.1c )     (3.0c )     -  
                                         
Earnings per ordinary share - diluted
    576.0 c     117.5 c     130.9 c     150.9 c     105.3 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 $12.5 million, $nil, $23.0 million, $nil and $45.0 million in the years ended December 31, 2014, 2013, 2012, 2011 and 2010 respectively;
 

 
46

 


 
 
·
Impairment loss of $190.3 million in respect of certain in-process research and development (“IPR&D”) assets in the year to December 31, 2014; Impairment loss of $7.1 million related to the goodwill allocated to the Company’s former Regenerative Medicine (“RM”) reporting unit and impairment loss of $19.9 million in respect of RESOLOR IPR&D assets in the year to December 31, 2013; Impairment loss of $197.9 million in respect of RESOLOR intangible assets (finite lived intangible assets ($126.7 million) and 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; and impairment loss of $42.7 million following the decision to divest DAYTRANA to Noven in the year to December 31, 2010;
 
 
·
Reorganization costs, relating to employee involuntary termination benefits and other reorganization costs, of $180.9 million, $88.2 million, $nil, $24.3 million and $34.3 million in the years ended December 31, 2014, 2013, 2012, 2011 and 2010 respectively;
 
 
·
Integration and acquisition costs of $158.8 million in the year to December 31, 2014, primarily related to the acquisition and integration of ViroPharma and relating to the change in fair values of contingent consideration liabilities, a net credit to Integration and acquisition costs in the year to December 31, 2013 primarily related to a reduction in the fair value of contingent consideration liabilities, and Integration and acquisition costs of $13.5 million, $0.1 million and $8.0 million in the years ended December 31, 2012, 2011 and 2010 respectively;
 
(2)
Pursuant to the termination agreement with AbbVie, AbbVie paid the break fee in cash due under the cooperation agreement of approximately $1.635 billion on October 21, 2014.
 
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):
 
2014
   
2013
   
2012
   
2011
   
2010
 
Basic
    586.7       552.0       555.4       551.1       546.2  
Diluted
    591.3       590.3       593.5       595.4       590.3  
                                         
Cash dividends declared and paid per ordinary share
    20.760 c     17.600 c     15.320 c     13.330 c     11.500 c

December 31,
 
 
   
 
   
 
   
 
       
 
 
2014
   
2013
   
2012
   
2011
   
2010
 
 
    $’M       $’M       $’M       $’M       $’M  
Balance sheets:
                                       
Total current assets
    5,183.1       4,288.3       3,212.1       2,208.2       1,880.3  
Total assets
    13,632.1       8,323.0       7,317.2       6,380.2       5,387.6  
Total current liabilities
    3,021.9       1,807.9       1,645.6       2,534.3       1,293.3  
Long term obligations
    736.7       588.5       1,341.6       144.3       1,290.8  
Total liabilities
    4,969.2       2,957.0       3,508.0       3,195.2       2,936.2  
Total equity
    8,662.9       5,366.0       3,809.2       3,185.0       2,451.4  
 
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.
 

 
47

 


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
 
The Company has grown both organically and through acquisition, completing a series of major transactions that have brought therapeutic, geographic and pipeline growth and diversification. The Company will continue to conduct its own research and development, focused on rare diseases, as well as evaluate companies, products and pipeline opportunities that offer a strategic fit and have the potential to deliver value to all of the Company’s stakeholders: patients, physicians, policy makers, payers, investors and employees.
 
The Company’s purpose is to enable people with life altering conditions to lead better lives.  The Company will execute on its purpose through its strategy and business model. For further details of Shire’s strategy and business model, refer to ITEM 1: Business of this Annual Report on Form 10-K.
 
Through deep understanding of patients’ needs, the Company is able to:
 
 
·
serve patients with high unmet needs in select, commercially attractive specialty therapeutic areas;
 
 
·
drive optimum performance of its marketed products – to serve patients today;
 
 
·
build its pipeline of innovative specialist treatments through both R&D and Corporate Development activities – to enable the Company to serve patients in the future.
 
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 one reportable segment. The Company also earns royalties (where Shire has out-licensed products to third parties) which are recorded as royalty revenues.
 
Revenues are derived primarily from two sources - sales of the Company’s own products and royalties:
 
 
·
97% (2013: 96%) of total revenues are derived from product sales; and
 
 
·
3% of total revenues are derived from royalties (2013: 3%).
 
The markets in which the Company conducts its business are intensely competitive and highly regulated.
 
The health-care industry is also experiencing:
 
 
·
pressure from governments and healthcare providers to keep prices low while increasing access to drugs;
 
 
·
increased discount liability due to the population of “baby boomers” covered under Medicare, specifically those beneficiaries receiving drug cost offset through the Medicare Part D Coverage Gap (the “Donut Hole”);
 
 
·
increasing challenges from third party payers for products to have demonstrable clinical benefit, with pricing and reimbursement approval becoming increasingly linked to a product’s clinical effectiveness and impact on overall costs of patient care;
 
 
·
increased R&D costs, because development programs are typically larger and take longer to get approval from regulators;
 
 
·
challenges to existing patents from generic manufacturers;
 
 
·
governments and healthcare systems favoring earlier entry of low cost generic drugs; and
 
 
·
higher marketing costs, due to increased competition for market share.
 
Shire’s strategy has been developed to address these industry-wide competitive pressures. This strategy has resulted in a series of initiatives in the following areas:
 
Markets
 
Shire’s current portfolio of approved products focuses on the following markets: Rare Diseases, Neuroscience, and GI and Internal Medicine. Shire also has a number of marketed products for other therapeutic areas from which it generates product revenues or royalties from third parties. In 2014 Shire derived 40% of product sales from Rare Diseases products, 31% from Neuroscience products and 29% from GI and Internal Medicine products. Shire’s early stage research is primarily focused on rare diseases.
 

 
 
48

 



Shire has grown in part through acquisition which has brought therapeutic, geographic and pipeline growth and diversification. For example, the recent acquisitions of Lumena and Fibrotech in 2014, and Lotus Tissue Repair, Premacure and SARcode in 2013 provide potential access to new markets such as ophthalmology and neonatology. The acquisition of ViroPharma, which closed in January 2014, expanded Shire’s Rare Diseases portfolio including adding CINRYZE, a leading currently marketed product for the prophylactic treatment of HAE.
 
In February 2015 Shire also completed the acquisition of NPS Pharma. This acquisition adds global rights to an innovative product portfolio with multiple growth catalysts, including, GATTEX/REVESTIVE with growing sales for the treatment of adults with SBS, a rare GI condition; and NATPARA/NATPAR, the only bioengineered hormone replacement therapy for use in the treatment of HPT, a rare endocrine disease, which received FDA approval in January 2015.
 
In 2014 Shire derived 30% (2013: 30%) of product sales from outside of 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:
 
 
·
submission of an MAA to the EMA for once-daily, non-stimulant guanfacine extended release of INTUNIV in the EU;
 
·
the approval of a marketing authorization by the MHLW in Japan for AGRYLIN (marketed as XAGRID in the EU) in adult essential thrombocythaemia patients; and
 
 
·
the launch of VPRIV in Japan, for the improvement of symptoms of Gaucher disease, following approval of a marketing authorization on July 4, 2014 by the MHLW in Japan;
 
R&D
 
In 2013 Shire combined the R&D organizations of its former divisions into a single One Shire R&D organization, focused around a prioritized portfolio of clinical development and research programs. Shire has focused its R&D efforts on five therapeutic areas: Neuroscience, GI/Metabolic Diseases, Renal/Fibrotic Diseases, Ophthalmic Diseases, and Diseases of the Complement Cascade. Shire concentrates its resources on obtaining regulatory approval for later-stage pipeline products within these therapeutic areas and focuses its early stage research activities in rare diseases.
 
Evidence of the successful progression of the late stage pipeline can be seen in the granting of approval and associated launches of the Company’s products over the last five years. In this time several products have received regulatory approval including: in the US, VPRIV in 2010, FIRAZYR in 2011, and VYVANSE for BED in 2015; in the EU, VPRIV in 2010 and ELVANSE/TYVENSE in 2012; in Canada, VYVANSE in 2010.
 
Prior to the One Shire R&D reorganization, the Company’s management reviewed R&D expenditure by operating segment. Following the One Shire R&D reorganization, Shire’s management reviews direct costs for all R&D projects by development phase.
 
Shire’s R&D costs in 2014 included expenditure on programs in all stages of development. The following table provides an analysis of the Company’s direct R&D spend categorized by development stage, based upon the development stage of each program as at December 31, 2014:
 
Year to December 31,
 
2014
   
2013
 
 
 
$'M
   
$'M
 
Early stage programs
    170       102  
Late stage programs
    253       327  
Currently marketed products
    143       179  
                 
Total
    566       608  

 

 
49

 

 
In addition to the above, the Company recorded R&D employee costs of $270 million in 2014 (2013: $282 million) and other indirect R&D costs of $232 million (2013: $43 million), comprising depreciation and impairment charges.
 
For a discussion of the Company’s current development projects see ITEM 1: Business.
 
Patents and Market Exclusivity
 
The loss or expiration of patent protection or regulatory exclusivity with respect to any of the Company’s major products could have a material adverse effect on the Company’s revenues, financial condition and results of operations, as generic or biosimilar products may enter the market. Companies selling generic products often do not need to complete extensive clinical studies when they seek registration of a generic or biosimilar product and accordingly, and are generally able to sell a generic version of 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 periods prior to the authorized generic launches.
 
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.
 
In 2014 an authorized generic version of the Company’s INTUNIV product was launched, which led to lower sales of Shire’s INTUNIV product compared to the period before loss of exclusivity.
 
Shire is engaged in various legal proceedings with generic manufacturers with respect to its VYVANSE and LIALDA patents. For more detail of current patent litigation, see Note 18, “Commitments and Contingencies, Legal and other proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.
 
Corporate Development
 
Shire focuses its corporate development activity on the acquisition and in-licensing of businesses, products or compounds which offer a strategic fit and have the potential to deliver demonstrable value to all of the Company’s stakeholders.
 
Recent mergers or acquisitions
 
In February 2015 Shire completed the acquisition of NPS Pharma. This acquisition adds global rights to an innovative product portfolio with multiple growth catalysts, including GATTEX/REVESTIVE with growing sales for the treatment of adults with SBS, a rare GI condition; and NATPARA/NATPAR, following its US approval on January 23, 2015, the only bioengineered hormone replacement therapy for use in the treatment of HPT, a rare endocrine disease.
 
In February 2015 Shire also acquired Meritage Pharma, Inc (“Meritage”). This acquisition provides Shire with worldwide rights to Meritage’s Phase 3-ready compound Oral Budesonide Suspension (“OBS”) for the potential treatment of adolescents and adults with eosinophilic esophagitis (“EoE”), a rare, chronic inflammatory GI disease.
 
In 2014, Shire acquired:
 
 
·
ViroPharma which added a leading marketed product for the prophylactic treatment of HAE, CINRYZE, as well as a number of other marketed products and a pipeline of product candidates in the rare disease area;
 
 
·
Lumena which added global rights to two late stage pipeline assets, SHP625 (formerly LUM001), in Phase 2 clinical development with four potential orphan indications; and SHP626 (formerly LUM002), ready to enter  a Phase 1b multiple dose trial in the first half of 2015;

 
·
Fibrotech which added global rights to SHP627 (formerly FT011) in Phase 1b, a new class of oral drug with a novel mechanism of action which has the potential to address both the inflammatory and fibrotic components of disease processes. In addition Shire has acquired Fibrotech’s library of novel molecules including SHP628 (formerly FT061), which is in pre-clinical development; and

 
·
BIKAM which added global rights to SHP630 (formerly BIK-406) in pre-clinical development, for the potential treatment of autosomal dominant retinitis pigmentosa (adRP).
 
In 2013, Shire acquired:
 
 
·
SARcode which added SHP606 to the Shire portfolio (SHP606 is currently in Phase 3 development for the treatment of DED).
 
 
·
Premacure which added SHP607 to the Shire portfolio (SHP607 is currently in Phase 3 for the prevention of ROP).
 
 
·
Lotus Tissue Repair which added global rights to a protein replacement therapy in pre-clinical development, for the treatment of Dystrophic Epidermolysis Bullosa (“DEB”).

 
50

 


Collaboration and licensing activity
 
Shire has also entered into a number of collaboration and license agreements in recent years, including:
 
 
·
A worldwide licensing and collaboration agreement with ArmaGen in 2014 to develop and commercialize AGT-182, an investigational enzyme replacement therapy for the potential treatment of both the central nervous system and somatic manifestations in patients with Hunter syndrome;

 
·
A collaboration and license agreement with Sangamo to develop therapeutics for hemophilia and other monogenic diseases based on Sangamo’s ZFP technology in 2012; and
 
 
·
An agreement with Shionogi in 2012 to co-develop and co-commercialize VYVANSE and INTUNIV in Japan.
 
Organization and Structure
 
In 2013 the Company integrated its operations into a simplified One Shire organization in order to drive future growth and innovation. Shire now comprises a single operating and reportable segment. For further details see ITEM 15: Exhibits and Financial Statements Schedules and Note 24 “Segmental reporting” to the consolidated financial statements set forth in this Annual Report on Form 10-K. As part of the One Shire reorganization, the Company undertook a review of all of its pipeline programs and identified those projects that fit with the Company’s new strategic direction and have an acceptable likelihood of success. Following that review and overall streamlining of the R&D organization, several clinical and pre-clinical projects were discontinued which resulted in the elimination of a significant number of R&D roles and functional roles that support R&D in Basingstoke, and some positions were re-located.
 
In addition the Company also relocated its international commercial hub from Nyon, Switzerland to Zug, Switzerland in 2013. All Nyon-based employees were affected by the move to Zug. Shire is now operating from its new Zug office and is providing employees with a reasonable period of time to manage their relocations.
 
Certain aspects of the One Shire program were temporarily put on hold due to AbbVie’s offer for Shire, which was terminated in October 2014. Subsequent to the termination of AbbVie’s offer, Shire announced its plans to relocate over 500 positions to Massachusetts from its Chesterbrook, Pennsylvania, site and establish Lexington, Massachusetts, as the Company’s US operational headquarters in continuation of the One Shire efficiency program. This relocation will streamline business globally through two principal locations, Massachusetts and Switzerland, with support from regional and country-based offices around the world.
 
For further details see ITEM 15: Exhibits and Financial Statements Schedules and Note 5 “Reorganization costs” to the consolidated financial statements set forth in this Annual Report on Form 10-K.
 
On October 22, 2013 Shire discontinued the construction of its new manufacturing facility in San Diego. Subsequently on January 16, 2014, the Company sold and transferred certain of the assets relating to the manufacturing, marketing, sale and distribution of DERMAGRAFT to Organogenesis Inc. For further information, see ITEM 15: Exhibits and Financial Statement Schedules and Note 9, “Results of discontinued operations” to the consolidated financial statements set forth in this Annual Report on Form 10-K.
 

 
51

 


Results of operations for the years to December 31, 2014 and 2013
 
Financial highlights for the year to December 31, 2014 are as follows:
 
·
Product sales grew strongly in 2014, up 23% to $5,830 million (2013: $4,757 million). Product sales in 2014 included $538 million for products acquired with ViroPharma, primarily $503 million from CINRYZE. The inclusion of ViroPharma contributed 12 percentage points to reported product sales growth in the year.
 
Excluding products acquired with ViroPharma, product sales were up 11%. This growth was driven by VYVANSE (up 18% to $1,449 million), LIALDA/MEZAVANT (up 20% to $634 million), ELAPRASE (up 9% to $593 million), REPLAGAL (up 7% to $500 million), VPRIV (up 7% to $367 million), and FIRAZYR (up 55% to $364 million).
 
The strengthening of the US dollar during the fourth quarter of 2014 negatively affected the growth in product sales for a number of the Company’s products, notably ELAPRASE, REPLAGAL and VPRIV. The US dollar has remained strong during the early part of 2015 and exchange rates as at January 31, 2015 were $1.13:€1.00 and $1.51:£1.00 (average exchange rates for the year to December 31, 2014 were $1.33:€1.00 and $1.65:£1.00). If exchange rates remain at these levels throughout 2015, or if the US dollar strengthens further against the Euro and the Pound Sterling, the Company’s product sales growth in 2015 will be adversely impacted, particularly for ELAPRASE, REPLAGAL and VPRIV.
 
·
Total revenues were up 22% to $6,022 million (2013: $4,934 million), due to the Company’s strong product sales growth and higher royalties and other revenues (up 8%). The higher royalty income included $22 million of INTUNIV royalties following generic entry in December and other revenues included the receipt of a $13 million milestone relating to FOSRENOL.
 
·
Operating income from continuing operations in 2014 was down 2% to $1,698 million (2013: $1,734 million). Operating income from continuing operations includes $190 million of intangible asset impairment charges (2013: $20 million), integration and acquisition costs of $159 million (2013: a net credit of $134 million), One Shire reorganization costs of $181 million (2013: $88 million), and costs associated with AbbVie’s terminated offer for Shire of $96 million (2013: $nil). Excluding these items, operating income grew strongly in 2014, up 36%, due to higher total revenues (up 22%) and only a 9% increase in combined R&D and SG&A, demonstrating the Company’s focus on delivering efficient growth.
 
·
Diluted earnings per ordinary share from continuing operations increased 127% to $5.55 (2013: $2.45) primarily due to the receipt of a $1,635 million break fee in relation to AbbVie’s terminated offer for Shire and a lower effective tax rate of 2% (2013: 16%), which was partially offset by the lower operating income.
 
Total revenues
 
The following table provides an analysis of the Company’s total revenues by source:
 
Year to December 31,
 
2014
   
2013
   
Change
 
 
 
$'M
   
$'M
   
%
 
Product sales
    5,830.4       4,757.5       +23 %
Royalties
    160.8       153.7       5 %
Other revenues
    30.9       23.1       34 %
                         
Total
    6,022.1       4,934.3       +22 %
 

 
52

 


Product sales1
 
 
 
Year to
   
Year to
         
 
   
 
       
 
 
December 31,
   
December 31,
   
Product sales
   
Non-GAAP CER
   
US prescription
   
Exit market
 
 
 
2014
   
2013
   
growth
   
growth4
   
growth2
   
share2
 
 
 
$'M
   
$'M
   
%
   
%
   
%
   
%
 
Net product sales:
 
 
   
 
         
 
   
 
   
 
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
VYVANSE
    1,449.0       1,227.8       +18       +18       +4       16  
LIALDA/MEZAVANT
    633.8       528.9       +20       +20       +25       33  
ELAPRASE
    592.8       545.6       +9       +11       n/a     n/a
CINRYZE
    503.0       -       n/a       n/a       n/a     n/a
REPLAGAL
    500.4       467.9       +7       +10       n/a     n/a
ADDERALL XR
    383.2       375.4       +2       +3       +7       5  
VPRIV
    366.7       342.7       +7       +8       n/a     n/a
FIRAZYR
    364.2       234.8       +55       +55       n/a     n/a
INTUNIV
    327.2       334.9       -2       -2       -3       2  
PENTASA
    289.7       280.6       +3       +3       -4       13  
FOSRENOL
    183.0       183.4       -       -1       -8       4  
XAGRID
    108.5       99.4       +9       +6       n/a     n/a
Other product sales
    128.9       136.1       -5       -4       n/a       n/a  
                                                 
Total product sales
    5,830.4       4,757.5       +23       +23                  

(1)
Product sales from continuing operations, including ViroPharma acquired on January 24, 2014, and excluding DERMAGRAFT which has been treated as discontinued operations following divestment on January 17, 2014.
(2)
Data provided by IMS Health National Prescription Audit (“IMS NPA”). Exit market share represents the average US market share in the month ended December 31, 2014.
(3)
IMS NPA Data not available.
(4)
Not sold in the US in the year to December 31, 2014.
(5)
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 2014 product sales and revenues restated using 2013 average foreign exchange rates to 2013 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, 2014 were $1.65:£1.00 and $1.33:€1.00 (2013: $1.56:£1.00 and $1.33:€1.00).

 
VYVANSE – ADHD
 
VYVANSE product sales grew strongly (up 18%) in 2014 primarily due to the benefit of price increases1 and to a lesser extent higher US prescription demand and growth in ex-US product sales.  This growth was partially offset by a lower level of stocking in 2014 as compared to 2013.
 
Litigation proceedings regarding VYVANSE are ongoing. Further information about this litigation can be found in ITEM 3: Legal Proceedings and Note 18, “Commitments and Contingencies, Legal and other proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.
 
LIALDA/MEZAVANT – Ulcerative colitis
 
The 20% growth in product sales for LIALDA/MEZAVANT in 2014 was primarily driven by higher prescription demand (up 25%) and to a lesser extent a price increase1 taken at the beginning of 2014. The growth was partially offset by a lower level of stocking and higher sales deductions as a percentage of sales in 2014 as compared to 2013.
 
Litigation proceedings regarding LIALDA are ongoing. Further information about this litigation can be found in ITEM 3: Legal Proceedings and Note 18, “Commitments and Contingencies, Legal and other proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.
 

 
53

 


ELAPRASE – Hunter syndrome
 
ELAPRASE sales growth was up 9% (up 11% on a Non GAAP CER basis), driven by continued growth in the number of treated patients, especially in emerging markets. Sales growth was negatively affected by foreign exchange.
 
CINRYZE – for the prophylactic treatment of HAE
 
Shire acquired CINRYZE through its acquisition of ViroPharma on January 24, 2014. CINRYZE sales were $503 million in 2014, growing 30% on a pro-forma basis on 2013(2) primarily driven by more patients on therapy and to a lesser extent the impact of a price increase1 in the US and an increase in channel inventory.
 
REPLAGAL – Fabry disease
 
REPLAGAL sales were up 7% compared to 2013 (up 10% on a Non GAAP CER basis), driven primarily by higher unit sales as the Company continues to see an increase in the number of patients on therapy, with good growth in emerging markets and to a lesser extent in Europe. The benefit of the higher unit sales was partially offset by foreign exchange.
 
ADDERALL XR – ADHD
 
ADDERALL XR product sales were up 2% in 2014, as a result of higher prescription demand, partially offset by lower stocking in 2014 compared to 2013.
 
Litigation proceedings regarding ADDERALL XR are ongoing. Further information about this litigation and the Impax settlement, can be found in ITEM 3: Legal Proceedings and Note 18, “Commitments and Contingencies, Legal and other proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.
 
VPRIV – Gaucher disease
 
VPRIV sales were up 7% (up 8% on a Non GAAP CER basis), driven by a strong performance in the EU and US as the Company continues to add naïve patients and gain patients switching from other therapies. Sales growth was also negatively impacted by foreign exchange.
 
FIRAZYR – Hereditary Angioedema
 
FIRAZYR sales growth was up 55% compared to 2013, driven by a higher number of patients on therapy and the effect of a price increase1 in the US market.
 
INTUNIV – ADHD
 
INTUNIV product sales were down 2% compared to 2013, reflecting the impact of generic competition from December 2014, which resulted in lower prescription demand, significantly higher sales deductions as a percentage of product sales and destocking as compared to a slight level of stocking in 2013. This was partially offset by price increases1 taken in 2014. The impact of generic competition saw INTUNIV market share fall to 2.3% at the end of 2014 from 4.6% at the beginning of the year.
 
Further information about litigation proceedings regarding INTUNIV can be found in ITEM 3: Legal Proceedings and Note 18, “Commitments and Contingencies, Legal and other proceedings” to the consolidated financial statements set forth in this Annual Report on Form 10-K.
 
PENTASA – Ulcerative Colitis
 
PENTASA product sales were up 3% as the benefit of price increases1 was partially offset by higher sales deductions and a lower prescription demand in 2014 compared to 2013.
 
1 The actual net effect of price increases on current period net sales compared to the comparative period is difficult to quantify due to the various managed care rebates, Medicaid discounts, other discount programs in which the Company participates and fee for service agreements with wholesalers customers.
 
2 2013 CINRYZE sales were recorded by ViroPharma, prior to the acquisition of ViroPharma by Shire.
 

 
54

 


Royalties
 
 
 
Year to
   
Year to
   
 
 
 
 
December 31,
   
December 31,
   
 
 
 
 
2014
   
2013
   
Change
 
 
 
$'M
   
$'M
   
%
 
FOSRENOL
    51.4       48.1       7 %
3TC and ZEFFIX
    33.9       46.7       -27 %
ADDERALL XR
    28.9       27.6       5 %
INTUNIV
    22.0       -       n/a  
Other
    24.6       31.3       -21 %
                         
Total
    160.8       153.7       5 %

Shire has received royalty income from Actavis following INTUNIV generic competition from December 2014.  Royalty income is based on 25% of Actavis’ gross profits from INTUNIV sales.