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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Shire | LSE:SHP | London | Ordinary Share | JE00B2QKY057 | ORD 5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 4,690.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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2016 Annual Report - DTR 6.3.5 Disclosure
March 23, 2017 - Shire plc (LSE: SHP, NASDAQ: SHPG) (the "Company") announces
that the following documents have today been posted or otherwise will be made
available to shareholders:
* 2016 Annual Report
* Notice of the 2017 Annual General Meeting
* Form of Proxy
In accordance with Listing Rule 9.6.1R, a copy of each of these documents will
be uploaded to the National Storage Mechanism and will be available for viewing
shortly.
The 2016 Annual Report and Notice of the 2017 Annual General Meeting are also
available on Shire's website: www.shire.com
Disclosure & Transparency Rule ("DTR") 6.3.5R requires the Company to disclose
to the media certain information from its Annual Report if that information is
of a type that would be required to be disseminated in a half-yearly report.
The information contained in the Appendix to this announcement, together with
the Company's unaudited full year results for the year ended December 31, 2016,
issued on February 16, 2017, constitute the materials required by DTR 6.3.5R to
be communicated to the media in unedited full text through a Regulatory
Information Service. This material is not a substitute for reading the full
2016 Annual Report.
The information included in the Appendix is extracted from the 2016 Annual
Report which was approved by the Board of Directors on February 22, 2017.
Defined terms used in the Appendix refer to terms as defined in the 2016 Annual
Report, unless the context otherwise requires.
Stephen Williams
Deputy Company Secretary
For further information please contact:
Investor Relations
Ian Karp ikarp@shire.com +1 781 482 9018
Robert Coates rcoates@shire.com +44 1256 894874
NOTES TO EDITORS
About Shire
Shire is the leading global biotechnology company focused on serving people
with rare diseases. We strive to develop best-in-class products, many of which
are available in more than 100 countries, across core therapeutic areas
including Hematology, Immunology, Neuroscience, Ophthalmics, Lysosomal Storage
Disorders, Gastrointestinal / Internal Medicine / Endocrine and Hereditary
Angioedema; and a growing franchise in Oncology.
Our employees come to work every day with a shared mission: to develop and
deliver breakthrough therapies for the hundreds of millions of people in the
world affected by rare diseases and other high-need conditions, and who lack
effective therapies to live their lives to the fullest.
www.shire.com
Forward-Looking Statements
Statements included herein that are not historical facts, including without
limitation statements concerning future strategy, plans, objectives,
expectations and intentions, the anticipated timing of clinical trials and
approvals for, and the commercial potential of, In-line or pipeline products,
are forward-looking statements. Such forward-looking statements involve a
number of risks and uncertainties and are subject to change at any time. In the
event such risks or uncertainties materialize, Shire's results could be
materially adversely affected. The risks and uncertainties include, but are not
limited to, the following:
* Shire's products may not be a commercial success;
* increased pricing pressures and limits on patient access as a result of
governmental regulations and market developments may affect Shire's future
revenues, financial condition and results of operations;
* Shire 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 Shire's products or
ingredients are only available from a single approved source for
manufacture. Any disruption to the supply chain for any of Shire's products
may result in Shire being unable to continue marketing or developing a
product or may result in Shire being unable to do so on a commercially
viable basis for some period of time;
* the manufacture of Shire's products is subject to extensive oversight by
various regulatory agencies. Regulatory approvals or interventions
associated with changes to manufacturing sites, ingredients or
manufacturing processes could lead to significant delays, an increase in
operating costs, lost product sales, an interruption of research activities
or the delay of new product launches;
* certain of Shire's therapies involve lengthy and complex processes, which
may prevent Shire from timely responding to market forces and effectively
managing its production capacity;
* Shire has a portfolio of products in various stages of research and
development. The successful development of these products is highly
uncertain and requires significant expenditures and time, and there is no
guarantee that these products will receive regulatory approval;
* the actions of certain customers could affect Shire's ability to sell or
market products profitably.
Fluctuations in buying or distribution patterns by such customers can adversely
affect Shire's revenues, financial conditions or results of operations;
* Shire's products and product candidates face substantial competition in the
product markets in which it operates, including competition from generics;
* adverse outcomes in legal matters, tax audits and other disputes, including
Shire's ability to enforce and defend patents and other intellectual
property rights required for its business, could have a material adverse
effect on the combined company's revenues, financial condition or results
of operations;
* inability to successfully compete for highly qualified personnel from other
companies and organizations;
* failure to achieve the strategic objectives with respect to Shire's
acquisition of NPS Pharmaceuticals, Inc., Dyax Corp. ("Dyax") or Baxalta
Inc. ("Baxalta") may adversely affect Shire's financial condition and
results of operations;
* Shire's growth strategy depends in part upon its ability to expand its
product portfolio through external collaborations, which, if unsuccessful,
may adversely affect the development and sale of its products;
* a slowdown of global economic growth, or economic instability of countries
in which Shire does business, as well as changes in foreign currency
exchange rates and interest rates, that adversely impact the availability
and cost of credit and customer purchasing and payment patterns, including
the collectability of customer accounts receivable;
* failure of a marketed product to work effectively or if such a product is
the cause of adverse side effects could result in damage to the Shire's
reputation, the withdrawal of the product and legal action against Shire;
* 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;
* Shire is dependent on information technology and its systems and
infrastructure face certain risks, including from service disruptions, the
loss of sensitive or confidential information, cyber-attacks and other
security breaches or data leakages that could have a material adverse
effect on Shire's revenues, financial condition or results of operations;
* Shire incurred substantial additional indebtedness to finance the Baxalta
acquisition, which may decrease its business flexibility and increase
borrowing costs;
* difficulties in integrating Dyax or Baxalta 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 at the time anticipated or at all; and
* a further list and description of risks, uncertainties and other matters
can be found on pages 55 to 65 of this Annual Report.
All forward-looking statements attributable to us or any person acting on our
behalf are expressly qualified in their entirety by this cautionary statement.
Readers are cautioned not to place undue reliance on these forward-looking
statements that speak only as of the date hereof. Except to the extent
otherwise required by applicable law, we do not undertake any obligation to
update or revise forward-looking statements, whether as a result of new
information, future events or otherwise.
APPIX
Contents
1. Chairman's review
2. Chief Executive Officer's review
3. Review of our business
4. Principal risks and uncertainties
5. Directors' responsibility statement
1. Chairman's Review
This year has been one of transformation for Shire - one where we are now
recognized as the world leader in the treatment of rare diseases.
With the acquisitions of Dyax and Baxalta, we have grown from 6,000 employees
at the start of 2016 to approximately 24,000 today, and have expanded the reach
of our global sales from 72 to over 100 countries. During this time, Shire
launched four new drugs, including XIIDRA®, the first and only product approved
in the U.S. to treat both the signs and symptoms of dry eye disease. We also
expanded and progressed our pipeline so we now have roughly 40 programs in the
clinic with about 20 in the later stages of development. These accomplishments
set the stage for Shire's continued growth and are just a few examples of the
many achievements highlighted in this Annual Report.
The patient is at the center of everything we do at Shire. This drives how we
discover, develop and deliver new medicines, and guides how we interact and
support our patient communities. During 2016, Shire provided a multi-year grant
to the SeriousFun Children's Network to enable young people with rare illnesses
to have a life-changing experience at summer camp and to help their families
bond through Family Weekend programs. Many families have told us about the
extraordinary impact of these experiences, a sentiment echoed by our employees
who volunteered with SeriousFun.
Shire is also a leader in responsibility and sustainability. The company was
recognized by Scrip's Pharma as "Company of the Year" in 2016. We were once
again included in the FTSE4Good Index, which measures globally recognized
standards for corporate responsibility. Newsweek ranked Shire as the number one
greenest company in its 2016 Green Rankings. Our commitment to transparency was
recognized by AllTrials, as Shire was the only company to have published
results for all clinical trials completed during the past 10 years.
Our business is not without its challenges. We operate in an environment with
significant political and market volatility. Shire's strategy is to deliver
products that are innovative and differentiated, enabling us to provide value
to patients and payers, while creating value for shareholders.
I would like to thank Flemming Ornskov, Shire's CEO, and his leadership team
for their vision, passion and exceptional performance. We are now a global
industry leader and forward-thinking organization. This is driven by the
company's focus on innovation and high performance. I would also like to
acknowledge Shire employees for their commitment to the company, and to
patients, especially during a time of major transformation. I particularly want
to recognize the thousands of Shire employees who participated in Shire's
Global Day of Service, helping to improve local communities.
During the year, the Board played an important role, especially as the company
completed the Baxalta acquisition, the largest in our history. My sincerest
thanks to fellow Board members for their many contributions. In 2016, Gail
Fosler and Albert Stroucken, formerly Baxalta Directors, joined our Board as
Non-Executive Directors. In early 2017, Ian Clark, former CEO of Genentech,
also joined the Shire Board. You can read more about the Board in the
Governance section, beginning on page 66.
Looking forward, our priorities are to progress revenue growth, further develop
the product pipeline, and continue to integrate the Baxalta business while
reducing the associated debt. We will continue to be responsible and responsive
to our communities while remaining focused on delivering long-term value to
shareholders. I am confident we have the right team, the right strategy and the
right resources in place to accomplish these goals. It is my privilege to be a
part of this organization.
Susan Kilsby
Chairman
2. Chief Executive Officer's Review
A game changing year
2016 was a transformational year for Shire. We took a big step forward in
serving people with rare diseases with the acquisition of Baxalta, which added
three new therapeutic areas including category leadership in hematology and
immunology and a growing franchise in oncology. As a result of the acquisition
and strong performance across our combined portfolio, we achieved record
revenue of $11.4 billion, almost double 2015's $6.4 billion.
Since successfully navigating and finalizing the Baxalta acquisition, we are
ahead of plan on the massive task of integration and delivering promised
synergies. We are now approximately 24,000 people strong and are bringing our
products to patients in over 100 countries.
We also completed the $6 billion acquisition of Dyax to expand our industry
leading portfolio in Hereditary Angioedema ("HAE") and we in-licensed from
Pfizer a very promising candidate for Crohn's disease and ulcerative colitis.
Our employees did an outstanding job staying focused and delivering for
patients during a time of significant change. In 2016, we also launched truly
innovative products to address high unmet medical needs.
* The launch of XIIDRA, the only prescription eye drop approved in the U.S.
for the treatment of signs and symptoms of Dry eye disease, was another
big success. We had an exceptional new drug launch, demonstrating our
strength in commercial excellence and capturing 19 percent of market share
within four months. This marks an outstanding entry into ophthalmics and we
aim to further build a leadership position in this therapeutic area.
* We launched CUVITRUT in the U.S., a convenient at-home, subcutaneous
treatment for primary immunodeficiency. Convenience is important to our
patients and their families because many of our medicines are given as
infusions or injections, through various devices and delivery methods.
* Outside the U.S., we gained EU Marketing Authorization of ONIVYDE® for the
treatment of metastatic adenocarcinoma of the pancreas in adult patients
who have had gemcitabinebased therapy. ONIVYDE is the first and only
approved treatment option for this patient population.
These new therapies exemplify our commitment to new-to-class, potentially
best-in-class, or novel treatments for rare diseases.
All in all, 2016 was a standout year where we achieved our goal of becoming the
leading biotech company focused on rare diseases. Today, 75 percent of our
pipeline and 65 percent of our sales are in rare diseases.
A unique need - and model - for biotech innovation
Rare diseases, most of which are genetic and are present throughout a person's
entire life, pose a significant medical and economic burden for patients,
communities and healthcare systems. There are more than 7,000 known rare
diseases impacting 350 million people worldwide. Millions more have specialized
conditions. What these figures do not reflect are the untold number of mothers,
fathers, friends and family who watch a loved one struggle with health
challenges that, in many cases, cannot be adequately addressed today. Nearly 50
percent of the time these loved ones are children.
What's more, delays to diagnosis are commonly experienced by patients with rare
diseases, and can lead to serious consequences for their health, as well as the
wider healthcare system.
These facts are what drive our unique model for biotech innovation. It is a mix
of internal knowledge, capabilities and research, combined with collaborations
with external partners, and supplemented by business development and M&A. We
are very flexible in our approach, combining internal and external to create
the best routes to innovation.
At the same time, we are extremely focused on growing and leading in our chosen
therapeutic areas. We see our patient communities as key partners in
innovation. Close, long-term relationships with patients, their doctors and
caregivers make all the difference in finding solutions for the challenges of
their often-lifetime conditions. We have also significantly expanded our
support services in helping patient's gain access to and stay on our medicines.
An exciting late-stage clinical portfolio
Our pipeline has transformed in recent years, and now includes compounds with
potential rare disease indications at all stages of development. Most of the
products are new-to-class, potentially best-in-class or novel. We have 17 Phase
3 programs and most are expected to launch by the end of 2020, if approved.
These include:
* SHP465, the first new treatment in almost a decade for Attention Deficit
Hyperactivity Disorder ("ADHD").
* SHP621, recently granted breakthrough therapy designation by the U.S. FDA
for eosinophilic esophagitis, a serious, chronic rare disease.
* SHP643, recently granted breakthrough therapy designation by the U.S. FDA
for hereditary angioedema ("HAE"). If we are able to replicate the clinical
data we saw in earlier trials and if SHP643 is approved, we believe this
product has the potential to be an advancement in the way HAE patients are
treated, offer significant benefit to patients, and serve as a key growth
driver for Shire's business.
* SHP607, our treatment for neonatal complications, has had positive Phase 2
results and is now going into Phase 3, with the potential to significantly
impact the health of premature infants.
With approximately 40 programs in the clinic and about 20 in the later stages
of development, we now have the deepest, and most innovative, pipeline in our
30-year history.
A commitment to doing the right thing
Our employees lead the way in ensuring we have a positive impact on society.
In addition to their day-to-day focus on patients and a commitment to doing the
right thing at work, they are also involved in our communities. In 2016,
approximately 6,500 employees participated in our Global Day of Service in 150
locations around the world. Together, they donated over 25,000 hours of their
time. This was for one event. We know our people and teams are dedicated to
helping others throughout the year and also to using our resources in a
responsible way. In fact, the company has received awards and recognition for
our responsibility efforts and I encourage you to read on in this report to
learn more.
It is an honor to work alongside our talented and dedicated employees and I'm
thrilled that Shire is a place where people like to work, where we not only
attract the best at all levels but also invest in their ongoing education and
development. We saw a surge in job applications in 2016, also mirroring the
greater recognition we have gained in our industry as a biotech leader.
Building on our leading position
We have a strong track record of excellent commercial execution and delivering
on short and medium-term financial promises to our shareholders. We like to set
stretch goals and the integration of Baxalta has not distracted us from this
focus.
As we grow, we want to retain the touch and feel of a small biotech so we have
the benefits both of scale and agility. It's about very simple, very flat and
rapid decision-making. We support this through innovation and operational
excellence, through the interplay between our key strategic centers in Zug,
Boston and Dublin, and through our In-line, Pipeline and Corporate Committees.
Speed matters, especially to the patients who are waiting for treatments, and
that's why we've built a fast-paced, entrepreneurial, international culture
where we give people freedom and opportunity to excel while also setting a high
bar for being ethical and responsible.
Our teams will continue to support people with rare diseases through every step
of their journey. This includes targeted diagnostic approaches to help improve
the pathway to diagnosis, assistance programs for those with limited financial
resources and personalized life-long programs that support on-going treatment
and enhance quality of life. We also remain committed to working alongside
partners, doctors, patient advocacy organizations, governments and payers to
deliver value and meaningful outcomes that help ease the long-term economic
burden of these diseases for patients, communities and healthcare systems.
While each rare disease community is small on its own; together they make one
large rare disease population in need of solutions. Shire is in a leading
position to provide these solutions on a global scale, enabling more patients
and families around the world to live their lives to the fullest.
Thank you for your continued support.
Flemming Ornskov, MD, MPH
Chief Executive Officer
3. Financial Review
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, partners, investors and employees.
The Company's purpose is to enable people with life-altering conditions to lead
better lives. The Company will execute on its purpose through its strategy and
business model. For further details of Shire's strategy and business model,
refer to pages 12 and 14.
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; and
* build its pipeline of innovative specialist treatments through both R&D and
Corporate Development activities to enable the Company to serve patients in
the future.
Shire's in-licensing and acquisition efforts are focused on products in
specialist markets with strong intellectual property protection or other forms
of market exclusivity and global rights. Shire believes that a carefully
selected and balanced portfolio of products with strategically aligned and
relatively small-scale sales forces will deliver strong results.
Company revenues, expenditures and net assets are attributable to the R&D,
manufacture, sale and distribution of pharmaceutical products within one
reportable segment. The Company also earns royalties (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:
* 95.5 percent (2015: 95.0 percent) of total revenues are derived from
Product sales; and
* 4.5 percent (2015: 5.0 percent) of total revenues are derived from
royalties.
The markets in which the Company conducts its business are intensely
competitive and highly regulated.
The healthcare industry is also experiencing:
* pressure from governments and healthcare providers to keep prices low while
increasing access to drugs;
* increased discounts, which reduce revenue, due to the population of "baby
boomers" covered under Medicare, specifically those beneficiaries receiving
drug cost offset through the Medicare Part D Coverage Gap (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 spans seven key therapeuticareas ("TAs"): Hematology, Genetic Diseases (HAE/LSD), Neuroscience,
Immunology, Internal Medicine, Oncology and Ophthalmology. In addition, Shire
has a number of marketed products for other TAs from which it generates Product
sales or royalties. In 2016, the contribution of each TA to overall Product
sales was as follows:
Product sales Percentage
$'M %
Hematology 2,240.8 20.6
Genetic Disease 2,698.0 24.8
Neuroscience 2,490.5 22.9
Immunology 1,516.1 13.9
Internal Medicine 1,755.5 16.1
Oncology 130.5 1.2
Ophthalmology 54.4 0.5
10,885.8 100.0
Shire has grown in part through acquisition which has brought therapeutic,
geographic and pipeline growth and diversification.
The acquisition of Baxalta in 2016 added the Hematology, Immunology and
Oncology franchises and enabled Shire to become the global leader in rare
diseases and highly specialized conditions.
The acquisition of Dyax in January 2016, with their lead pipeline product,
SHP643, and marketed product KALBITOR, expanded and extended Shire's
industry-leading HAE portfolio (FIRAZYR and CINRYZE).
In July 2016, Shire licensed the global rights to all indications for SHP647
from Pfizer Inc. SHP647 is an investigational biologic being evaluated for the
treatment of moderate-to-severe inflammatory bowel disease.
In 2015, Shire acquired NPS Pharma, Meritage Pharma and Foresight.
The acquisition of NPS Pharma added global rights to an innovative product
portfolio with multiple growth catalysts, including GATTEX/REVESTIVE and
NATPARA. The acquisition of Meritage Pharma provided global rights to SHP621, a
Phase 3 ready asset for the treatment of adolescents and adults with EoE, a
rare, chronic inflammatory GI disease. This builds upon the Company's rare
disease and GI commercial infrastructure and expertise. With the acquisition of
Foresight Shire acquired the global rights to SHP640
(topical ophthalmic drops combining 0.6 percent povidone iodine (PVP-I) and 0.1
percent dexamethasone), a potential therapy in late-stage development for the
treatment of infectious conjunctivitis, an ocular surface condition commonly
referred to as pink eye. This acquisition has a clear strategic fit with
XIIDRA, which is approved in the U.S. for the treatment of the signs and
symptoms of dry eye disease, and further demonstrates Shire's commitment to
building a leadership position in ophthalmics.
In 2016, Shire derived 32 percent (2015: 27 percent) of Product sales from
outside of the U.S. Shire has ongoing commercialization and late-stage
development activities, which are expected to further supplement the
diversification of revenues in the future, including the following:
* continued launch of INTUNIV, REVESTIVE and ONIVYDE across Europe;
* review of MAAs for NATPAR and ADYNOVI in the EU;
* review of NDA for SHP465 in U.S.;
* submission of CALPEG NDA for ALL in U.S.;
* submission of VONVI MAA in Europe;
* headline data from registration studies for SHP643; and
* geographic expansion of XIIDRA with submissions in other key markets.
R&D
Shire's R&D efforts are focused on six therapeutic areas: Neuroscience,
Ophthalmology, Hematology, Oncology, Immunology, GI/Metabolic/Endocrinology
Diseases. Shire concentrates its resources on obtaining regulatory approval for
later stage pipeline products within these therapeutic areas and focuses its
early stage research activities in rare diseases.
Evidence of the successful progression of the late stage pipeline can be seen
in the granting of approval and associated launches of the Company's products
over the last three years. In this time, several products have received
regulatory approval including: in the U.S., XIIDRA and CUVITRU in 2016,
VONVI, DYNOVATE, NATPARA and VYVANSE for BED in 2015, HYQVIA and OBIZUR in
2014; in the EU, ONIVYDE and CUVITRU in 2016, ELVANSE/TYVENSE for adults,
INTUNIV for children and adolescents and OBIZUR in 2015.
Shire's management reviews direct costs for all R&D projects by development
phase.
Shire's R&D costs in 2016 and 2015 include expense 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 of December 31, 2016 and 2015:
As of December 31 2016 2015
$'M $'M
Early stage programs 325.7 177.2
Late stage programs 291.1 225.5
Currently marketed products 238.1 178.5
Total 854.9 581.2
Early stage programs include preclinical and research programs. In addition to
the above, the Company recorded R&D employee costs of $431.9 million in 2016
(2015: $302.9 million) and other indirect R&D costs of $153.0 million (2015:
$679.9 million), comprising mainly depreciation and milestone expense (2015
comprising mainly depreciation and impairment charges).
For a discussion of the Company's current development projects see pages 20 to
21.
Patents and Market Exclusivity
The loss or expiration of patent protection or regulatory exclusivity with
respect to any of the Company's major products could have a material adverse
effect on the Company's revenues, financial condition and results of
operations, as generic or biosimilar products may enter the market. Companies
selling generic products often do not need to complete extensive clinical
studies when they seek registration of a generic or biosimilar product and
accordingly, are generally able to sell a generic version of the Company's
products at a much lower price.
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 2014 and 2015, generic versions of the Company's INTUNIV product was
launched, which led to lower sales of 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 information regarding current
patent litigation, see Note 26, Legal and Other Proceedings, to the
Consolidated Financial Statements.
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 and acquisitions
2016:
* On January 22, 2016, Shire completed the acquisition of Dyax which expanded
and extended Shire's industry-leading HAE portfolio by adding the currently
approved product, KALBITOR for the treatment of sudden attacks of HAE in
people 12 years of age and older and SHP643, a Phase 3 program for the
treatment of HAE.
* On June 3, 2016, Shire acquired all of the outstanding common stock of
Baxalta. Baxalta was a global biopharmaceutical company, focused on
developing, manufacturing and commercializing therapies for orphan diseases
and underserved conditions in hematology, oncology and immunology. Baxalta
added a number of commercially approved products and enhanced Shire's
existing pipeline with a number of drug candidates in different therapeutic
areas under different phases of development. For further details, see pages
20 to 21.
2015:
* On February 21, 2015, Shire acquired NPS Pharma, which added global rights
to an innovative product portfolio with multiple growth catalysts,
including GATTEX/REVESTIVE for the treatment of adults with SBS, a rare GI
condition; and NATPARA/NATPAR, the only bioengineered parathyroid hormone
therapy for use in the treatment of HPT, a rare endocrine disease.
* On February 18, 2015, Shire acquired Meritage Pharma, which provided the
Company with worldwide rights to SHP621 for the potential treatment of
adolescents and adults with EoE, a rare, chronic inflammatory GI disease.
* On July 30, 2015, Shire acquired Foresight, which added global rights to
SHP640, a Phase 3 ready potential therapy for the treatment of infectious
conjunctivitis, an ocular surface condition commonly referred to as pink
eye.
Results of operations for the years ended December 31, 2016 and 2015
Financial highlights for the year ended December 31, 2016 are as follows:
Revenues
* Product sales increased by 78 percent to $10,886 million (2015: $6,100
million). This increase was primarily due to including $3,887 million of
Baxalta product sales following the acquisition, and double digit growth of
existing franchises, with Genetic Diseases up 12 percent, Neuroscience up
13 percent and Internal Medicine up 17 percent. In addition, the Company
launched XIIDRA in August 2016 and the Ophthalmology franchise contributed
sales of $54 million.
* Royalties and other revenues increased by 61 percent to $511 million, as
the second half of 2016 benefited from additional revenue following the
acquisition of Baxalta, primarily related to contract manufacturing
activities.
Operating results
* Operating income decreased 32 percent to $963 million (2015: $1,420
million), primarily due to the impact of the acquisition of Baxalta,
including higher amortization of inventory fair value adjustments and
acquired intangible assets, combined with higher integration and
acquisition costs, partially offset by lower impairment charges related to
R&D programs.
Earnings per share ("EPS")
* Diluted earnings per ADS decreased 81 percent to $1.27 (2015: $6.59). The
decrease was primarily due to lower operating income resulting from the
impact of the acquisition of Baxalta and higher integration and acquisition
costs, combined with the impact of additional shares issued as
consideration for the Baxalta transaction.
Cash flows
* Net cash provided by operating activities increased 14 percent to $2,659
million (2015: $2,337 million), primarily due to strong cash receipts from
higher sales, partially offset by higher tax and interest payments, costs
related to the Baxalta integration and a payment associated with the
termination of a biosimilar collaboration acquired with Baxalta.
Total revenues
The following table provides an analysis of the Company's total revenues by
source:
2016 2015 Change
As of December 31 $'M $'M %
Product sales 10,885.8 6,099.9 78
Royalties and other 510.8 316.8 61
revenues
Total 11,396.6 6,416.7 78
Product sales
As of December 31 2016 2015 Change
$'M $'M %
Product sales:
HEMOPHILIA 1,789.0 - N/A
INHIBITOR 451.8 - N/A
THERAPIES
Hematology total 2,240.8 - N/A
CINRYZE 680.2 617.7 10.1
ELAPRASE 589.0 552.6 6.6
FIRAZYR 578.5 445.0 30.0
REPLAGAL 452.4 441.2 2.5
VPRIV 345.7 342.4 1.0
KALBITOR 52.2 - N/A
Genetic Diseases 2,698.0 2,398.9 12.5
total
VYVANSE 2,013.9 1,722.2 16.9
ADDERALL XR 363.8 362.8 0.3
Other 112.8 115.4 (2.2)
Neuroscience
Neuroscience 2,490.5 2,200.4 13.2
total
IMMUNOGLOBULIN 1,143.9 - N/A
THERAPIES
BIO THERAPEUTICS 372.2 - N/A
Immunology total 1,516.1 - N/A
LIALDA/MEZAVANT 792.1 684.4 15.7
PENTASA 309.4 305.8 1.2
GATTEX/REVESTIVE 219.4 141.7 54.8
NATPARA 85.3 24.4 249.6
Other Internal 349.3 344.3 1.4
Medicine
Internal Medicine 1,755.5 1,500.6 N/A
total
Oncology total 130.5 - N/A
Ophthalmology 54.4 - N/A
total
Total Product 10,885.8 6,099.9 78.5
sales
Hematology
Hematology, acquired with Baxalta June 2016, includes sales of recombinant and
plasma-derived hemophilia products (primarily factor VIII and factor IX) and
inhibitor therapies. Product sales of the franchise for the year ended December
31, 2016 were $2,241 million.
Genetic Diseases
Genetic Diseases product sales for the year ended December 31, 2016 increased
to $2,698 million or 12 percent from $2,399 million in 2015, primarily driven
by increased demand for HAE therapies.
FIRAZYR product sales for the year ended December 31, 2016 increased to $579
million or 30 percent from $445 million in 2015, primarily due to an increase
in the number of patients on therapy in both the U.S. and international
markets. CINRYZE sales for the year ended December 31, 2016 increased to $680
million or
10 percent from $618 million in 2015, as an increase in the number of patients
on therapy was partially offset by reduced utilization as a result of a U.S.
supply constraint during the second half of the year. Shire continues to
execute on plans to increase CINRYZE production to meet both short-term and
long-term patient demand.
Neuroscience
Neuroscience product sales for the year ended December 31, 2016 increased to
$2,490 million or 13 percent from $2,200 million in 2015, primarily driven by
sales growth of VYVANSE.
VYVANSE sales for the year ended December 31, 2016 increased to $2,014 million
or 17 percent from
$1,722 million in 2015, due to prescription growth in the U.S. adult market,
which includes ADHD and BED, and the benefit of price increases taken since
2015 and growth in the Company's international markets.
Information about litigations related to VYVANSE can be found in Note 26, Legal
and Other Proceedings, to the Consolidated Financial Statements.
Immunology
Immunology, acquired with Baxalta in June 2016, reported product sales of
$1,516 million. Immunology includes antibody-replacement immunoglobulin and bio
therapeutics therapies.
Internal Medicine
Internal Medicine product sales for the year ended December 31, 2016 increased
to $1,756 million or 17 percent from $1,501 million in 2015, primarily driven
by sales growth from LIALDA/MEZAVANT, GATTEX/
REVESTIVE and NATPARA.
LIALDA/MEZAVANT product sales increased to $792 million or 16 percent for the
year ended December 31, 2016 from $684 million in 2015, primarily due to an
increase in prescription demand, resulting in a U.S. market share of 40 percent
at the end of 2016 (compared to 36 percent in 2015).
Information about litigations related to LIALDA can be found in Note 26, Legal
and Other Proceedings, to the Consolidated Financial Statements.
GATTEX/REVESTIVE and NATPARA product sales increased to $219 million or 55
percent and $85 million or 250 percent, respectively, for 2016, compared to
product sales in 2015 primarily due to an increase in the numbers of patients
on therapy.
Oncology
Oncology, acquired with Baxalta in June 2016, reported product sales of $131
million. Oncology includes sales of ONCASPAR and ONIVYDE. ONIVYDE was approved
in the EU on October 18, 2016.
Ophthalmology
Ophthalmology product sales relate to XIIDRA, which was made available to
patients on August 29, 2016. XIIDRA product sales were $54 million for the year
ended December 31, 2016.
Royalties and other revenues
As of 2016 2015 Change
December 31 $'M $'M %
SENSIPAR royalties 151.5 114.5 32
3TC and ZEFFIX royalties 58.9 49.1 20
FOSRENOL royalties 48.2 46.1 5
ADDERALL XR royalties 32.3 26.0 24
Other royalties and 219.9 81.1 171
revenues
Total 510.8 316.8 61
Royalties and other revenues increased to $511 million or 61 percent for the
year ended December 31, 2016 from $317 million in 2015, primarily due to $99
million of contract manufacturing revenue from the acquisition of Baxalta.
Cost of product sales
Cost of product sales increased by $2,848 million to $3,817 million for the
year ended December 31, 2016 (35 percent of Product sales) from $969 million in
2015 (16 percent of Product sales) primarily due to the impact of higher
amortization of inventory fair value adjustments in 2016 following the
acquisitions of Baxalta and Dyax and, to a lesser extent, the impact of lower
margin product franchises acquired with Baxalta. Cost of product sales included
$1,118 million and $31 million of amortization of inventory fair value
adjustments in 2016 and 2015, respectively.
For the year ended December 31, 2016, Cost of product sales included additional
depreciation totaling $161 million (2015: $46 million), primarily due to the
acquisition of Baxalta.
R&D
R&D expense decreased by $124 million, or 8 percent, to $1,440 million for the
year ended December 31, 2016 (13 percent of Product sales) from $1,564 million
in 2015 (26 percent of Product sales), as lower IPR&D impairment charges in
2016 more than offset the increase in costs related to Baxalta and Dyax and
costs related to licensing SHP647. R&D expense in 2015 included impairment
charges of $467 million related to the SHP625 IPR&D intangible asset, due to a
lower probability of regulatory approval following trial results and revised
commercial potential, and $177 million related to the SHP608 IPR&D intangible
asset, following preclinical toxicity findings. No significant impairment
charges occurred in 2016.
R&D expense for the year ended December 31, 2016 included depreciation of $34
million (2015: $22 million).
SG&A
SG&A expense increased by $1,173 million, or 64 percent, to $3,015 million for
the year ended December 31, 2016 (28 percent of Product sales) from $1,843
million in 2015 (30 percent of Product sales), primarily due to the inclusion
of Baxalta related costs and XIIDRA launch and promotional costs.
For the year ended December 31, 2016, SG&A expense included depreciation of $98
million (2015: $71 million).
Amortization of acquired intangible assets
For the year ended December 31, 2016, Shire recorded Amortization of acquired
intangible assets of $1,173 million compared to $499 million in 2015. The
increase of $675 million was primarily related to amortization on the
intangible assets acquired with the Baxalta and Dyax transactions.
Integration and acquisition costs
For the year ended December 31, 2016, Shire recorded integration and
acquisition costs of $884 million, primarily related to the Baxalta and Dyax
transactions, which included severance and employee termination benefits and
office closure related expenses.
In 2015, Shire recorded net integration and acquisition costs of $40 million,
representing acquisition and integration costs of $190 million, primarily
related to NPS, ViroPharma, Baxalta and Dyax. These costs were offset by a net
credit of $150 million from the change in fair value of contingent
consideration, primarily relatingto SHP625 and SHP608.
Reorganization costs
For the year ended December 31, 2016, Shire recorded reorganization costs of
$121 million primarily related to the planned closure of a facility at the Los
Angeles manufacturing site acquired with Baxalta in June 2016.
Reorganization costs of $98 million for the year ended December 31, 2015,
primarily related to the relocation of roles from Pennsylvania to
Massachusetts.
Interest Expense
Other expense, net increased by $443 million to $477 million for the year ended
December 31, 2016 from $34 million in 2015, primarily due to higher interest
expense and amortization of one-time borrowing costs, including the write off
of certain financing costs related to the bridge facility for the Baxalta
transaction. During the third quarter of 2016, the bridge facility was fully
repaid with the proceeds from the $12.1 billion public debt offering.
Taxation
The effective tax rate on income from continuing operations for the year ended
December 31, 2016 was a benefit of 26 percent (2015: charge of 3 percent). The
effective tax rate on income from continuing operations in 2016 was lower
primarily due to the combined impact of the relative quantum of the profit
before tax for the period by jurisdiction and the reversal of deferred tax
liabilities (including in higher tax territories) from the Baxalta acquisition,
inventory and intangible asset amortization, as well as acquisition and
integration costs.
Discontinued operations
The loss from discontinued operations for the year ended December 31, 2016 was
$276 million, net of tax benefit of $99 million, primarily related to legal
contingencies for the divested DERMAGRAFT business. The loss from discontinued
operations for the year ended December 31, 2015 was $34 million, net of tax,
primarily related to a change in estimate for abandoned facilities charges.
Liquidity and Capital Resources
General
The Company's funding requirements depend on a number of factors, including the
timing and extent of its development programs; corporate, business and product
acquisitions; the level of resources required for the expansion of certain
manufacturing and marketing capabilities as the product base expands; increases
in accounts receivable and inventory which may arise with any increase in
Product sales; competitive and technological developments; the timing and cost
of obtaining required regulatory approvals for new products; the timing and
quantum of milestone payments on business combinations, in-licenses and
collaborative projects; the timing and quantum of tax and dividend payments;
the timing and quantum of purchases by
the Employee Benefit Trust ("EBT") of Shire shares in the market to satisfy
awards granted under Shire's employee share plans; and the amount of cash
generated from sales of Shire's products and royalty receipts.
An important part of Shire's business strategy is to protect its products and
technologies through the use of patents, proprietary technologies and
trademarks, to the extent available. The Company intends to defend its
intellectual property and as a result may need cash for funding the cost of
litigation.
The Company finances its activities through cash generated from operating
activities; credit facilities; private and public offerings of equity and debt
securities; and the proceeds of asset or investment disposals.
Shire's Consolidated Balance Sheets included $529 million of Cash and cash
equivalents as of December 31, 2016.
Shire has a revolving credit facility ("RCF") of $2,100 million which matures
in 2021, $450 million of which was utilized as of December 31, 2016. The RCF
incorporates a $250 million U.S. Dollar and Euro swingline facility operating
as a sub-limit thereof.
On September 23, 2016, Shire Acquisitions Investments Ireland Designated
Activity Company ("SAIIDAC"), a wholly owned subsidiary of the Company, issued
senior notes guaranteed by Shire plc with a total aggregate principal amount of
$12.1 billion. On December 1, 2016, Baxalta guaranteed the outstanding notes
issued by SAIIDAC.
In addition, in connection with the acquisition of Baxalta, on June 3, 2016,
Shire plc guaranteed senior notes issued by Baxalta with a total aggregate
principal amount of $5 billion and assumed $336 million of capital lease
obligations. The details of these senior notes are presented in Note 18,
Borrowings and Capital Lease Obligations, to the Consolidated Financial
Statements.
Further in connection with the acquisitions of Dyax and Baxalta, respectively,
Shire entered into a $5.6 billion amortizing term loan facility in November
2015 and an $18 billion bridge loan in January 2016. The November 2015 term
loan facility was fully utilized as of December 31, 2016 in the amount of $5
billion. The bridge loan was fully repaid and canceled subsequent to the
issuance of $12.1 billion in senior notes on September 23, 2016. The details of
these facility agreements are presented in Note 18, Borrowings and Capital
Lease Obligations, to the Consolidated Financial Statements.
In addition, Shire also has access to certain short-term uncommitted lines of
credit which are available to utilize from time to time to provide short-term
cash management flexibility. As of December 31, 2016, these
lines of credit were not utilized.
The Company may also engage in financing activities from time to time,
including accessing the debt or equity capital markets.
Senior Notes Issuance
On September 23, 2016, SAIIDAC, issued senior notes with a total aggregate
principal value of $12.1 billion ("SAIIDAC Notes"), guaranteed by Shire plc
and, as of December 1, 2016, by Baxalta. SAIIDAC used the net proceeds to fully
repay amounts outstanding under the January 2016 Facilities Agreement
(discussed below), which was used to finance the cash consideration payable
related to the Company's acquisition of Baxalta. Below is a summary of the
SAIIDAC Notes as of December 31, 2016:
Aggregate Coupon Effective Carrying
amount rate interest amount
$'M % rate $'M
%
Fixed-rate notes due 2019 3,300.0 1.900 2.05 3,287.5
Fixed-rate notes due 2021 3,300.0 2.400 2.53 3,283.0
Fixed-rate notes due 2023 2,500.0 2.875 2.97 2,487.9
Fixed-rate notes due 2026 3,000.0 3.200 3.30 2,980.8
12,100.0 12,039.2
The SAIIDAC Notes are senior unsecured obligations and may be redeemed at
SAIIDAC's option at the greater of (1) 100 percent of the principal amount plus
accrued and unpaid interest or (2) the sum of the present values of the
remaining scheduled payments of interest and principal discounted to the date
of redemption on a semi-annual basis at the applicable treasury rate (as
defined) plus an incremental margin, plus, in either case, accrued and unpaid
interest. The SAIIDAC Notes also contain a change of control provision that may
require that SAIIDAC to offer to purchase the SAIIDAC Notes at a price equal to
101 percent of the principal amount plus accrued and unpaid interest to the
date of purchase under certain circumstances.
The costs and discount associated with this offering of $61 million have been
recorded as a reduction to the carrying amount of the debt on the Consolidated
Balance Sheets. These costs will be amortized as additional interest expense
using the effective interest rate method over the period from issuance through
maturity. Interest on the SAIIDAC Notes is payable March 23 and September 23 of
each year, beginning on March 23, 2017.
Baxalta Notes
Shire plc guaranteed senior notes issued by Baxalta with a total aggregate
principal amount of $5 billion in connection with the Baxalta acquisition
("Baxalta Notes"). Below is a summary of the Baxalta Notes as of December 31,
2016:
Aggregate Coupon rate % Effective Carrying amount
principal $'M interest rate % $'M
Variable-rate 375.0 LIBOR plus 2.20 371.6
notes due 2018 0.780
Fixed-rate notes 375.0 2.000 2.00 374.8
due 2018
Fixed-rate notes 1,000.0 2.875 2.80 1,004.3
due 2020
Fixed-rate notes 500.0 3.600 3.30 508.4
due 2022
Fixed-rate notes 1,750.0 4.000 3.90 1,772.8
due 2025
Fixed-rate notes 1,000.0 5.250 5.10 1,031.7
due 2045
Total Baxalta 5,000.0 5,063.6
Notes
The effective interest rates above exclude the effect of any related interest
rate swaps. The book values above include any premiums and adjustments related
to hedging instruments. For further details related to the interest rate
derivative contracts, please see Note 16, Financial Instruments, to the
Consolidated Financial Statements.
Revolving Credit Facilities Agreement
On December 12, 2014, Shire entered into a $2,100 million revolving credit
facilities agreement (the "RCF") with a number of financial institutions. Shire
is an original borrower and original guarantor under the RCF. On January 15,
2016, SAIIDAC became additional guarantor to the RCF and on December 1, 2016,
Baxalta became additional guarantor to the RCF. Shire has agreed to act as
guarantor for any of its subsidiaries that become additional borrowers under
the RCF. As of December 31, 2016 the Company utilized $450 million
of the RCF.
The RCF, which terminates on December 12, 2021, may be applied towards
financing the general corporate purposes of Shire. The RCF incorporates a $250
million U.S. Dollar and Euro swingline facility operating as a sub-limit
thereof.
Interest on any loans made under the RCF is payable on the last day of each
interest period, which may be one week or one, two, three or six months at the
election of Shire, or as otherwise agreed with the lenders. The interest rate
for the RCF is: LIBOR (or, in relation to any revolving loan in Euro, EURIBOR);
plus 0.30 percent per annum subject to change depending upon (i) the prevailing
ratio of Net Debt to EBITDA (each as defined in the RCF) in respect of the most
recently completed financial year or financial half year and (ii) the
occurrence and continuation of an event of default in respect of the financial
covenants or the failure to provide a compliance certificate.
Shire shall also pay (i) a commitment fee equal to 35 percent of the applicable
margin on available commitments under the RCF for the availability period
applicable thereto and (ii) a utilization fee equal to
(a) 0.10 percent per year of the aggregate of all outstanding loans up to an
aggregate base currency amount equal to $700 million, (b) 0.15 percent per year
of the amount by which the aggregate base currency amount of all outstanding
loans exceeds $700 million but is equal to or less than $1,400 million and (c)
0.30 percent per year of the amount by which the aggregate base currency amount
of all outstanding loans exceeds $1,400 million.
The RCF includes customary representations and warranties, covenants and events
of default, including requirements that Shire's (i) ratio of Net Debt to EBITDA
in respect of the most recently-ended 12-month relevant period (each as defined
in the RCF) must not, at any time, exceed 3.5:1 except that, following an
acquisition fulfilling certain criteria, Shire may elect to increase this ratio
to (a) 5.5:1 for the relevant period in
which the acquisition was completed (b) 5.0:1 in respect of the first relevant
period following the relevant period in which the acquisition was completed and
(c) 4.5:1 in respect of the second relevant period following the relevant
period in which the acquisition was completed and (ii) ratio of EBITDA to Net
Interest for the most recently-ended 12-month relevant period (each as defined
in the RCF) must not be less than 4.0:1. Shire elected to increase the Net Debt
to EBITDA ratio in connection with the period ending June 30,
2016, following the completion of the acquisition of Baxalta during the period.
Consequently, the applicable ratio for the period ending December 31, 2016 is
5.0:1.
The RCF restricts, subject to certain exceptions, Shire's ability to incur
additional financial indebtedness, grant security over its assets or provide
loans/grant credit. Further, any lender may require mandatory
prepayment of its participation if there is a change of control of Shire,
subject to certain exceptions for schemes of arrangement and analogous schemes.
Events of default under the RCF include, subject to customary grace periods and
materiality thresholds: (i) non-payment of any amounts due under the finance
documents (as defined in the RCF), (ii) failure to satisfy any financial
covenants, (iii) material misrepresentation in any of the finance documents,
(iv) failure to pay, or
certain other defaults, under other financial indebtedness, (v) certain
insolvency events or proceedings, (vi) material adverse changes in the
business, operations, assets or financial condition of Shire as a whole, (vii)
if it becomes unlawful for Shire (or any successor parent company) or any of
their respective subsidiaries that are parties to the RCF to perform their
obligations thereunder or (viii) if Shire (or any successor parent company) or
any subsidiary thereof which is a party to the RCF repudiates such agreement or
other finance document, among others.
Term Loan Facilities Agreement
January 2016 Facilities Agreement
On January 11, 2016, Shire (as original guarantor and original borrower),
entered into an $18 billion bridge facilities agreement with various financial
institutions (the "January 2016 Facilities Agreement"). The January 2016
Facilities Agreement comprised two credit facilities: (i) a $13 billion term
loan facility originally maturing on January 11, 2017 ("January 2016 Facility
A") and (ii) a $5 billion revolving loan facility originally maturing on
January 11, 2017 ("January 2016 Facility B"). On April 1, 2016 SAIIDAC became
additional borrower and additional guarantor to the January 2016 Facilities
Agreement.
The January 2016 Facility A was utilized to finance the cash consideration
payable in respect of the acquisition of Baxalta on June 3, 2016 in the amount
of $12,390 million. The net proceeds from the issuance
of the SAIIDAC Notes were used to fully repay the amounts outstanding under the
January 2016 Facility A in September 2016. The January 2016 Facility B was
canceled effective July 11, 2016, in accordance with
its terms.
November 2015 Facilities Agreement
On November 2, 2015, Shire (as original guarantor and original borrower)
entered into a $5.6 billion facilities agreement with various financial
institutions (the "November 2015 Facilities Agreement"). The November 2015
Facilities Agreement comprises three credit facilities: (i) a $1.0 billion term
loan facility of which, following the exercise of the one year extension option
in the amount of $400.0 million, $600.0 million
matured and was repaid on November 2, 2016 and $400.0 million matures on
November 2, 2017 ("November 2015 Facility A"), (ii) a $2.2 billion amortizing
term loan facility which matures on November 2, 2017 ("November 2015 Facility
B") and (iii) a $2.4 billion amortizing term loan facility which matures on
November 2, 2018 ("November 2015 Facility C").
On January 15, 2016, SAIIDAC became additional borrower and additional
guarantor to the November 2015 Facilities Agreement and on December 1, 2016,
Baxalta became an additional guarantor to the November 2015 Facilities
Agreement. As of December 31, 2016, the November 2015 Facilities Agreement was
fully utilized by SAIIDAC as borrower in the amount of $5.0 billion to finance
the cash consideration payable and certain costs related to the acquisition of
Dyax. On January 30, 2017, SAIIDAC made its first repayment installment of
$400.0 million of the November 2015 Facility B in accordance with the terms of
the agreement.
Interest on any loans made under the November 2015 Facilities Agreement is
payable on the last day of each interest period, which may be one week or one,
two, three or six months, or as otherwise agreed with the lenders. The interest
rate applicable is LIBOR plus, in the case of the November 2015 Facility A,
0.55 percent per annum, in the case of the November 2015 Facility B, 0.65
percent per annum and, in the case of the November 2015 Facility C, 0.75
percent per annum, in each case subject to change depending on (i) the
prevailing ratio of Net Debt to EBITDA (each as defined in the November 2015
Facilities Agreement) in respect of the most recently completed financial year
or financial half year and (ii) the occurrence and continuation of an event of
default in respect of the financial covenants or failure to provide a
compliance certificate.
The November 2015 Facilities Agreement includes customary representations and
warranties, covenants and events of default, including requirements that
Shire's (i) ratio of Net Debt to EBITDA in respect of
the most recently ended 12-month relevant period, (each as defined in the
November 2015 Facilities Agreement), must not, at any time, exceed 3.5:1,
except that following an acquisition fulfilling certain criteria, Shire may
elect to increase this ratio to (a) 5.5:1 for the relevant period in which the
acquisition was completed, (b) 5.0:1 in respect of the first relevant period
following the relevant period in which the acquisition was completed, Shire has
elected to increase this ratio in connection with the period ended June 30,
2016, following the completion of the acquisition of Baxalta during the period
and (c) 4.5:1 in respect
of the second relevant period following the relevant period in which the
acquisition was completed, Shire has elected to increase this ratio in
connection with the period ending June 30, 2016, following the completion of
the acquisition of Baxalta during the period and (ii) ratio of EBITDA to Net
Interest in respect of the most recently ended 12-month relevant period, (each
as defined in the November 2015 Facilities Agreement), must not be less than
4.0:1.
The November 2015 Facilities Agreement restricts, subject to certain
exceptions, Shire's ability to incur additional financial indebtedness, grant
security over its assets or provide loans/grant credit. Further, any
lender may require mandatory prepayment of its participation if there is a
change of control of Shire, subject to certain exceptions for schemes of
arrangement and analogous schemes.
Events of default under the November 2015 Facilities Agreement include, subject
to customary grace periods and materiality thresholds: (i) non-payment of any
amounts due under the finance documents (as defined in the November 2015
Facilities Agreement), (ii) failure to satisfy any financial covenants, (iii)
material misrepresentation in any of the finance documents, (iv) failure to
pay, or certain other defaults, under other financial indebtedness, (v) certain
insolvency events or proceedings, (vi) material adverse
changes in the business, operations, assets or financial condition of Shire as
a whole, (vii) if it becomes unlawful for Shire (or any successor parent
company) or any of their respective subsidiaries that are
parties to the November 2015 Facilities Agreement to perform their obligations
thereunder or (viii) if Shire (or any successor parent company) or any
subsidiary thereof which is a party to the November 2015 Facilities Agreement
repudiates the November 2015 Facilities Agreement or any other finance
document, among others.
January 2015 Facility Agreement
On January 11, 2015, Shire entered into an $850.0 million term facility
agreement with various financial institutions (the "January 2015 Facility
Agreement") with an original maturity date of January 10, 2016. The
maturity date was subsequently extended to July 11, 2016 in line with the
provisions within the January 2015 Facility Agreement allowing the maturity
date to be extended twice, at Shire's option, by six months on each occasion.
The January 2015 Facility Agreement was used to finance Shire's acquisition of
NPS Pharma (including certain related costs). On September 28, 2015, the
Company reduced the January 2015 Facility Agreement by $100.0 million. In
January 2016 and at various points thereafter, the Company canceled parts of
the January 2015 Facility Agreement. On February 22, 2016, the Company repaid
the remaining balance of $100.0 million of the January 2015 Facilities
Agreement in full.
Short-term uncommitted lines of credit ("Credit lines")
Shire has access to various Credit lines from a number of banks which are
available to be utilized from time to time to provide short-term cash
management flexibility. These Credit lines can be withdrawn by the banks at any
time. The Credit lines are not relied upon for core liquidity. As of December
31, 2016, these Credit lines were not utilized.
Financing
Shire anticipates that its operating cash flow together with available cash,
cash equivalents, and the RCF will be sufficient to meet its anticipated future
operating expenses, capital expenditures, tax and interest payments, lease
obligations, repayment of the term loans and milestone payments as they become
due over the next 12 months.
If the Company decides to acquire other businesses, it expects to fund these
acquisitions from cash resources, the RCF and through new borrowings (including
issuances of debt securities) or the issuance of new equity, if necessary.
Sources and uses of cash
The following table provides an analysis of the Company's gross and net cash
(excluding restricted cash), as of December 31, 2016 and 2015:
As of December 31 2016 2015
$'M $'M
Cash and cash equivalents 528.8 135.5
Long-term borrowings (19,552.6) (69.9)
Short-term borrowings (3,061.6) (1,511.5)
Other debt (353.6) (13.4)
Total debt (22,967.8) (1,594.8)
Net (22,439.0) (1,459.3)
debt
* Substantially all of the Company's cash and cash equivalents are held by
foreign subsidiaries (i.e. those subsidiaries incorporated outside of
Jersey, Channel Islands, the jurisdiction of Shire plc's incorporation).
The amount of cash and cash equivalents held by foreign subsidiaries has
not had, and is not expected to have, a material impact on the Company's
liquidity and capital resources.
* Net (debt)/cash is a Non GAAP measure. The Company believes that Net (debt)
/ cash is a useful measure as it indicates the level of net cash/borrowings
after taking account of the Cash and cash equivalents that could be
utilized to pay down the outstanding borrowings. See above for
reconciliation to cash and cash equivalents.
Cash flow activity
Net cash provided by operating activities for the year ended December 31, 2016
increased 14 percent to $2,658.9 million (2015: $2,337.0 million), primarily
due to increased cash receipts from higher sales, partially offset by higher
tax and interest payments, costs related to the Baxalta integration and a
payment associated with the termination of a biosimilar collaboration acquired
with Baxalta.
Net cash provided by operating activities for the year ended December 31, 2015
decreased by 45 percent to $2,337.0 million (2014: $4,228.4 million). Net cash
provided by operating activities in 2014 included the receipt of the $1,635
million break fee related to AbbVie's terminated offer for Shire, and the
benefit of the $417 million repayment received from the Canadian revenue
authorities. The net cash flows from operating activities was also impacted by
an increase of $160.6 million as a result of higher cash receipts from gross
product sales and royalties, which were partially offset by higher operating
expense payments.
Net cash used in investing activities was $18,092.2 million for the year ended
December 31, 2016, primarily related to the cash paid for the acquisitions of
Baxalta ($12,367 million, less cash acquired of $583 million) and Dyax ($5,934
million, less cash acquired of $241 million). The Company's investing
activities also included the purchase of $649 million of PP&E due to the
continued investment in manufacturing operations.
Net cash used in investing activities was $5,619.9 million for the year ended
December 31, 2015, primarily related to the cash paid for the acquisition of
NPS Pharma of $5,220 million (excluding cash acquired with NPS Pharma of $42
million) and for the acquisitions of Foresight ($299 million) and Meritage
Pharma ($75 million).
Net cash provided by financing activities was $15,825.8 million for the year
ended December 31, 2016, principally due to the issuance of the SAIIDAC Notes
in addition to the drawings, net of subsequent repayments, made under various
other borrowing facilities to partially fund the acquisitions of Baxalta and
Dyax. In addition, the Company made dividend payments of $171.3 million.
Net cash provided by financing activities was $439.0 million for the year ended
December 31, 2015, principally due to the drawings, net of subsequent
repayments, made under Shire's various borrowing facilities to partially fund
the NPS Pharma, Meritage Pharma and Foresight acquisitions. In addition, the
Company made dividend payments of $134.4 million.
Outstanding Letters of credit
As of December 31, 2016, the Company had irrevocable standby letters of credit
and guarantees with various banks totaling $139.7 million, providing security
for the Company's performance of various obligations. These obligations are
primarily in respect of the recoverability of insurance claims, lease
obligations and supply commitments.
Cash Requirements
As of December 31, 2016, the Company's cash requirements for current and
non-current liabilities reflected on the Consolidated Balance Sheets and other
contractual obligations were as follows:
Total Less than 1 1-3 years 3-5 years More than
$'M year $'M $'M 5 years
$'M $'M
Borrowings and capital lease 27,452.0 3,072.6 6,569.5 4,456.8 13,353.1
obligations
Operating leases obligations 985.2 155.5 215.9 171.9 441.9
Purchase obligations 3,488.6 1,092.7 1,398.4 799.0 198.5
Other non-current liabilities 587.9 - 452.7 42.0 93.2
Total 32,513.7 4,320.8 8,636.5 5,469.7 14,086.7
* Borrowings and capital lease obligations include interest payments related
to the fixed-rate borrowings.
* The Company leases certain land, facilities, motor vehicles and certain
equipment under operating leases expiring through 2021.
* Purchase obligations include agreements to purchase goods, investments or
services (including clinical trials, contract manufacturing and capital
equipment), and open purchase orders, that are enforceable and legally
binding and that specify all significant terms. Shire expects to fund these
commitments with cash flows from operating activities.
* Unrecognized tax benefits and associated interest and penalties of $201.1
million are included within payments due in one to three years.
The following items have been excluded from the table above:
* Cash outflows related to the assumed pension and other post-employment
benefit plans, in which timing of funding is uncertain and dependent on
future movements in interest rates and investment returns, changes in laws
and regulations and other variables.
* In connection with the Company's acquisitions, the Company recorded
contingent consideration liabilities related to development, regulatory and
commercial milestones and royalty payments. These liabilities were recorded
at fair value on the respective acquisition dates and revalued each
reporting period. The Company may pay up to approximately $2.0 billion,
which excludes royalty related payments, upon achieving clinical,
regulatory and commercialization milestones. For additional information,
see Note 15, Fair Value Measurement.
* Milestone payments to third-parties upon the achievement of development,
regulatory and commercial milestones, as well as potential royalty
payments, associated with in-licensing and collaboration agreements.
Potential future milestone payments associated with collaborations was
approximately $1.7 billion, which excludes potential royalty payments.
* Milestone payments related with collaboration agreements that become
payable only if the Company chooses to exercise one or more of its options
and potential contingent payments associated with R&D costs that may be
funded by collaboration partners in the future.
* An unfunded commitment of $76.4 million as a limited partner in multiple
investment companies, in which the timing of future payments is uncertain.
Off-balance sheet arrangements
There are no off-balance sheet arrangements, aside from those outlined above,
that have, or are reasonably likely to have, a current or future material
effect on the Company's financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
Foreign currency fluctuations
A number of the Company's subsidiaries have a functional currency other than
the U.S. Dollar. As such, the consolidated financial results are subject to
fluctuations in exchange rates, particularly in the Euro, Swiss Franc, Japanese
Yen and Pound Sterling against the U.S. Dollar.
Accumulated foreign currency translation differences of $1,505.4 million are
reported within Accumulated other comprehensive income as of December 31, 2016.
Foreign gains for the year ended December 31,
2016 of $17.7 million are reported in the Consolidated Statements of
Operations.
As of December 31, 2016, the Company had outstanding foreign exchange swap and
forward contracts that manage the currency risk associated with intercompany
transactions. As of December 31, 2016 the fair value of these contracts was a
net asset of $10.9 million.
Inflation
Although at reduced levels in recent years, inflation continues to apply upward
pressure on the cost of goods and services which are used in the business.
However, the Company believes that the net effect of inflation on its revenues
and operations has been minimal during the past three years.
Treasury policies and organization
The Company's principal treasury operations are coordinated by its corporate
treasury function. All treasury operations are conducted within a framework of
policies and procedures approved annually by the Board of Directors. As a
matter of policy, the Company does not undertake speculative transactions that
would increase its credit, currency or interest rate exposure.
Interest rate risk
The Company is exposed to the risk that its earnings and cash flows could be
adversely impacted by fluctuations in benchmark interest rates relating to its
debt obligations on which interest is set at floating rates. The Company's
policy is to manage this risk to an acceptable level. The Company is
principally exposed to interest rate risk on any borrowings under the Company's
various debt facilities and on part of the senior notes assumed in connection
with the acquisition of Baxalta. Interest on each of these debt obligations is
set at floating rates, to the extent utilized. Shire's exposure under these
facilities is to changes in U.S. Dollar interest rates. For details see Note
16, Financial Instruments, to the Consolidated Financial Statements.
The Company is also exposed to interest rate risk on its restricted cash, cash
and cash equivalents and on foreign exchange contracts on which interest is set
at floating rates. As the Company maintains all of its cash, liquid investments
and foreign exchange contracts on a short-term basis for liquidity purposes,
this risk is not actively managed. For the year ended December 31, 2016, the
average interest rate received on cash and liquid investments was less than 1
percent per annum. These cash and liquid investments were primarily invested in
U.S. Dollar term deposits with banks and money market and liquidity funds or
held as cash on account.
As of December 31, 2016, Shire estimates that a hypothetical increase and
decrease of 100 basis points in interest rates would increase and decrease net
interest costs by approximately $60.0 million and $50.0 million respectively
during 2017, and decrease and increase the fair value of long-term interest
rate sensitive instruments by approximately $970.0 million and $1,061.0
million, respectively, during the same period.
Foreign exchange risk
The Company operates in numerous countries and as a consequence has foreign
exchange exposure. The main operating currencies of the Company are the U.S.
Dollar, Pounds Sterling, Swiss Franc, Canadian Dollar, Japanese Yen and the
Euro. It is the Company's policy that these exposures are minimized to the
extent practicable by denominating transactions in the subsidiary's functional
currency.
Where significant exposures remain, the Company uses foreign exchange contracts
(spot, forward and swap contracts) to manage the exposure for balance sheet
assets and liabilities that are denominated in currencies different to the
functional currency of the relevant subsidiary. These assets and liabilities
relate predominantly to inter-company financing. The Company has not elected
hedge accounting for these transactions. Cash flows from derivative instruments
are presented within net cash provided by operating activities in the
Consolidated Statements of Cash Flows, unless the derivative instruments are
economically hedging specific investing or financing activities.
Translational foreign exchange exposure arises on the translation into U.S.
Dollars of the financial statements of non-U.S. Dollar functional subsidiaries.
For details see Note 16, Financial Instruments, to the Consolidated Financial
Statements.
Foreign exchange risk sensitivity
The following exchange rate sensitivity analysis summarizes the sensitivity of
the Company's reported revenues and net income to hypothetical changes in the
average annual exchange rates of the Euro, Pound Sterling and Swiss Franc
against the U.S. Dollar, (assuming a hypothetical 10 percent strengthening of
the U.S. Dollar against each of the aforementioned currencies in the year ended
December 31, 2016):
Reduction in revenues Reduction in net income
$'M $'M
Euro (153.2) (64.6)
Pound Sterling (25.3) (11.6)
Swiss Franc (5.8) (1.4)
A 10 percent weakening of the U.S. Dollar against the aforementioned currencies
would have an equal and opposite effect.
As of December 31, 2016 the Company had designated and undesignated foreign
exchange forward contracts. For more detail of foreign exchange forward
contracts, see Note 16, Financial Instruments, to the Consolidated Financial
Statements.
Concentration of credit risk
Financial instruments that potentially expose Shire to concentrations of credit
risk consist primarily of short-term cash investments, derivative contracts and
trade accounts receivable from Product sales and from third-parties from which
the Company receives royalties. Cash is invested in short-term money market
instruments, including money market and liquidity funds and bank term deposits
or held on account. The money market and liquidity funds where Shire invests
are all triple A rated by both Standard and Poor's and by Moody's credit rating
agencies.
The Company is exposed to the credit risk of the counterparties with which it
enters into bank term deposit arrangements and derivative instruments. The
Company limits this exposure through a system of internal
credit limits which vary according to ratings assigned to the counterparties by
the major rating agencies. The internal credit limits are approved by Shire's
Board of Directors and exposure against these limits is monitored by the
Company's corporate treasury function. The counterparties to these derivatives
contracts are major international financial institutions.
The Company's revenues from Product sales in the U.S. are mainly governed by
agreements with major pharmaceutical wholesalers and relationships with other
pharmaceutical distributors and retail pharmacy chains. For the year ended
December 31, 2016, there were three customers in the U.S. that accounted for 38
percent of the Company's Product sales.
Such customers typically have significant cash resources and as such the risk
from concentration of credit is considered acceptable. The Company has taken
positive steps to manage any credit risk associated with these transactions and
operates clearly defined credit evaluation procedures. However, an inability of
one or more of these wholesalers to honor their debts to the Company could have
an adverse effect on the Company's financial condition and results of
operations.
A substantial portion of the Company's accounts receivable in countries outside
of the U.S. is derived from Product sales to government-owned or
government-supported healthcare providers. The Company's recovery of these
accounts receivable is therefore dependent upon the financial stability and
creditworthiness of the relevant governments. In recent years global and
national economic conditions have negatively affected the growth,
creditworthiness and general economic condition of certain markets in which the
Company operates. As a result, in some countries outside of the U.S.,
specifically, Argentina, Brazil, Greece, Italy, Portugal and Spain, the Company
is experiencing delays in the remittance of receivables due from
government-owned or government-supported healthcare providers. Of those, the
only significant accounts receivable as of December 31, 2016 is $140.2 million
from Brazil.
The Company will continue to evaluate all its accounts receivable for potential
collection risks and has made provision for amounts where collection is
considered to be doubtful. Any such loss could have an adverse effect on the
Company's financial condition and results of operations. The Company does not
consider it is currently exposed to significant credit risk outside of the
countries listed above.
4. Principal risks and uncertainties
Risk management framework
As a highly regulated biotechnology company focused on serving people with rare
diseases, Shire has implemented policies, procedures and processes intended to
reduce risk and ensure appropriate and lawful conduct within the increasing
number of countries in which the Company operates. Success in these areas is of
benefit to shareholders and other stakeholders alike. Shire's risk management
strategy is to identify, assess and mitigate any significant risks that it
faces. Despite this, it should be noted that no risk management strategy can
provide absolute assurance against loss.
Board of Directors
The Board is responsible ensuring the maintenance of sound systems of risk
management and internal control and determining the Company's risk appetite. In
fulfilling this responsibility, the Board sets Shire's risk culture and ensures
it is embedded throughout the organization. The Board interacts with key
executive risk and internal controls stakeholders on a periodic and ad-hoc
basis, enabling it to monitor and review the Company's principal risks and the
effectiveness of its risk management and internal control programs. During the
year the Board undertook a robust assessment of the principal risks facing the
Company, including those that would threaten its business model, future
performance, solvency or liquidity. Stakeholders to the risk management
framework, which is overseen by the Board and designed to enable the
identification, assessment and mitigation of the Group's risks, are detailed
below.
Audit, Compliance & Risk Committee
The Audit, Compliance & Risk Committee supports the Board by monitoring and
reviewing risk management and internal control programs, maintaining oversight
through its interaction with key stakeholders and its evaluation of periodic
updates from management. On a biannual basis the Committee reviews the
principal risks faced by the Company, with each risk assessed on likelihood of
materialization and potential financial and non-financial impact.
Executive Committee
The Executive Committee ensures the implementation of the Company's risk
management and internal control programs, overseeing their effective operation.
On a biannual basis the Committee reviews and validates principal risks
identified during the Enterprise Risk Assessment before they are presented to
the Audit, Compliance & Risk Committee for consideration. Executive Committee
members also receive regular updates from functional and business unit
stakeholders and, along with the Chief Compliance and Risk Officer and the Head
of Internal Audit, are responsible for escalating matters of risk, risk
management and internal control to the Audit, Compliance & Risk Committee and/
or the Board, as required.
ERM Core Team
The ERM Core Team is led by the Chief Compliance and Risk Officer, includes the
Head of Monitoring and Risk Management and the Head of Risk Management and
Business Continuity Management and is advised by external consultants as
required. The ERM Core Team is charged with implementing and operating the
Enterprise Risk Management program. This consists of maintaining the enterprise
risk universe and risk assessment methodology, facilitating the biannual
Enterprise Risk Assessment, providing risk training and awareness to
stakeholders across the Group and providing support to the Executive Committee
and Audit, Compliance & Risk Committee. The ERM Core Team also identifies
executive and functional risk owners for each key risk and, as part of the
biannual Enterprise Risk Assessment process, facilitates the assessment of
Shire's enterprise risk universe, conducted in conjunction with individual
business units and corporate functions. Following completion of the Enterprise
Risk Assessment, a principal risk reporting package is prepared for review and
validation by the Executive Committee prior to the Chief Compliance and Risk
Officer's presentation to the Audit, Compliance & Risk Committee.
Global Compliance and Risk Management Department
The Department, led by the Chief Compliance and Risk Officer, is made up of
compliance, privacy and risk management capability. It is responsible for
supporting the development, implementation and maintenance of effective risk
management and compliance programs and systems. This is achieved through
governance, policy, capability and process development, the implementation of
awareness and training programs as well as communications, audits and
investigations. Such activity provides for the timely undertaking of mitigation
and remediation actions, as well for the escalation of matters to the Executive
Committee and Audit, Compliance & Risk Committee as appropriate.
Chief Compliance and Risk Officer
The Chief Compliance and Risk Officer is responsible for the global compliance
and risk management programs, providing the Executive Committee and the Audit,
Compliance & Risk Committee with biannual updates on risk and risk mitigation,
as well as more regular updates on compliance monitoring and investigation.
Internal Audit
The Internal Audit function provides independent assurance to the Audit,
Compliance & Risk Committee on the effectiveness and operation of internal
controls, risk mitigation and risk management programs.
Business units and corporate functions
The business units and corporate functions participate in the biannual
Enterprise Risk Assessment and broader Enterprise Risk Management program and
are responsible for implementing relevant risk management processes, including
identification, monitoring, escalation and reporting controls, within their
respective organizations.
Principal risks and uncertainties
The Company's business and assets are subject to varying degrees of risk and
uncertainty. Set out below are the principal risks and uncertainties associated
with the business that have been identified through the Company's risk
management and internal control programs. The Company believes that these risks
and uncertainties apply equally and therefore all should be carefully
considered before any investment is made in Shire.
Additional risks and uncertainties not presently known to the Company or that
it currently deems immaterial may also adversely affect its business. If any of
these events or circumstances occur, the business, financial condition, results
of operations, or prospects of the Company could be materially harmed. In such
circumstances, the value of the Company's securities could decline and an
investor could lose part or all of his or her investment. In addition,
forward-looking statements that are contained in this Annual Report or in the
Company's other reports, filings or statements may be subject to the principal
risks and uncertainties described below as well as other risks and
uncertainties.
Risks Related to the Business
The Company's products may not be a commercial success
The commercial success of the Company's marketed products and other new
products that the Company may launch in the future, will depend on their
approval and acceptance by physicians, patients 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 launches of new products or launch of the Company's products in new
markets are not successful;
* if there are unanticipated adverse events experienced with the Company's
products or those of a competitor not seen in clinical trials that impact
physicians' willingness to prescribe the Company's products;
* if issues arise from clinical trials being conducted for post-marketing
purposes or for registration in another country which raise questions or
concerns about a product;
* if the regulatory agencies in one country act in a way that raises concerns
for regulatory agencies or for prescribers or patients in another country;
* if there is a reduction in the use of the Company's products by patients,
payers or physicians due to the development of or preferences for
alternative technologies or treatments;
* if the Company's products are subject to more stringent government
regulation than competitor products;
* if patent protection or other forms of exclusivity are lost or curtailed,
or if competitors are able to successfully challenge or circumvent the
Company's patents or other forms of exclusivity (see Note 26, Legal and
Other Proceedings, to the Consolidated Financial Statements for details of
current litigation);
* if the sizes of the patient populations for the Company's products are less
than expected; or
* if there are lawsuits filed or government investigations initiated against
Shire, including but not limited to, product liability claims, consumer law
claims, payer or reimbursement litigation and prior sales or marketing
practices; or
* if there are adverse developments in investigations or government
proceedings.
If the Company is unable to commercialize its products successfully, there may
be a material adverse effect on the Company's revenues, financial condition or
results of operations.
Increased pricing pressures and limits on patient access as a result of
governmental regulations and market developments may affect the Company's
future revenues, financial condition and results of operations
The Company's product revenues are subject to increasing pressures from
governmental initiatives to regulate or influence prices and access to
customers. Regulations in the U.S., the European Union and other jurisdictions
mandating price controls or imposing constraints on patients' ability to
purchase Shire's products significantly impact its business. In the U.S., the
new administration has made public and social media statements regarding
proposed changes to existing government initiatives, like the Patient
Protection and Affordable Care Act ("ACA"), which has created significant
uncertainty for the future of federal government policies that regulate or
influence prices and access to customers. Any future changes in such laws,
regulations, practices or policies may adversely affect the Company's financial
condition and results of operations.
Regulatory measures that could have a material adverse effect on the Company
include the imposition of government-approved drug pricing schedules, the use
of drug formularies, prohibitions on direct-to-consumer advertising or drug
marketing practices, new regulations or new interpretations of existing or
historical regulations relating to governmental drug discount or rebate
programs that increase the Company's drug discount or rebate liability, and
caps or limits on the level of reimbursement provided to the Company by
governmental reimbursement schemes for its products.
These pressures have also resulted in market developments, such as the
consolidation of managed healthcare organizations and private health insurers
that have increased the relative bargaining power of institutional drug
purchasers and enhanced their ability to negotiate discounts and extract other
concessions in exchange for purchasing Shire's products.
Such regulatory and market developments create downward pressures on the prices
at which the Company can offer its products and on the level of reimbursement
its treatments receive from healthcare providers, private health insurers and
other organizations, such as health maintenance organizations and managed care
organizations.
Additional factors affecting the Company's ability to obtain and maintain
adequate prices and levels of reimbursement for its products include:
* higher levels of controls on the use of the Company's products and/or
requirements for further price concessions mandated or negotiated by
managed healthcare organizations or government authorities;
* legislative proposals to reform health care and government insurance
programs in many of the Company's markets; and
* price controls, unsuccessful government tenders, or non-reimbursement of
new medicines or new indications.
Moreover, the cost of treatment for some of the Company's products is high,
particularly those which are used for the treatment of rare diseases. The
Company may encounter difficulty in obtaining or maintaining satisfactory
pricing and reimbursement for such products. The failure to obtain and maintain
pricing and reimbursement at satisfactory levels for its products may adversely
affect the Company's revenues, financial condition or results of operations.
The Company depends on third-parties to supply certain inputs and services
critical to its operations including certain inputs, services and ingredients
critical to its manufacturing processes.
The Company relies on third-party suppliers, vendors and outsourcing partners
to, among other things, research, develop, manufacture and commercialize its
products, to provide certain key ingredients and manufacturing inputs and to
manage certain sales, distribution, marketing, information technology,
accounting, transaction-processing and other business services. While the
Company depends on these third-parties for multiple aspects of its product
development, manufacturing, commercialization and business activities, it does
not control these third-parties directly.
As a result, there is a possibility these third-parties may not complete
activities on schedule or in accordance with the Company's expectations, and
their failure to meet certain contractual, regulatory or other obligations to
Shire, or any disruption of Shire's relationship with these third-parties could
delay or prevent the development, approval, manufacture or commercialization of
the Company's products, result in non-compliance with applicable laws and
regulations, disrupt Shire's operations, or result in reputational or other
harm to the Company.
This outsourcing risk is of particular concern with respect to third-party
suppliers of key manufacturing inputs of certain of Shire's drug products,
including, but not limited to, ADVATE, ADYNOVATE, HYQVIA, ELAPRASE, FIRAZYR,
REPLAGAL and GATTEX/REVESTIVE where the Company currently relies on a single
active ingredient source for each. Shire also relies on limited third-party
sources to provide the donated plasma necessary for the manufacture of CINRYZE.
In addition, although the Company dual-sources certain key products and/or
active ingredients, the Company currently relies on a single source for
production of the final drug product for certain of its products, including,
but not limited to, ADDERALL XR, CINRYZE, CUVITRU, FIRAZYR, LIALDA and PENTASA.
For many of those components and materials for which a sole supplier is used,
the Company seeks to address potential supply disruption by, among other
things, regularly evaluating such risk and, if appropriate, holding strategic
inventory in the case of such potential supply disruptions. If such efforts
prove unsuccessful, it could have a material adverse effect on the Company's
revenues, financial condition or results of operations.
Any failure by a single-source supplier to provide the Company with the
required volumes on time or at all, or to provide products that do not meet
regulatory requirements, could lead to significant delays in the production of
Shire's products, increases in operating costs, lost product sales, an
interruption of research activities, or the delay of new product launches, all
of which could have a material adverse effect on the Company's revenues,
financial condition or results of operations.
Any disruption to the supply chain for any of the Company's products, or any
difficulties or delays in the manufacturing, distribution and sale of its
products may result in the Company being unable to continue marketing or
developing a product, or may result in the Company being unable to do so on a
commercially viable basis for some period of time
A disruption, delay or other difficulties in the manufacturing, distribution
and sale of Shire's products, or in the supply chain of any of its products,
may have a material adverse effect on the Company and its revenues, financial
condition and results of operations. Examples of such manufacturing and supply
chain difficulties include, but are not limited to:
* regulatory or enforcement actions that result in shut-downs, delays in or
withdrawal of regulatory approvals necessary to carry on manufacturing
activities, product recalls and penalties or fines resulting in
unanticipated costs in production, whether imposed directly on the Company
or imposed indirectly through one or more of its third-party suppliers;
* the inability of the Company to increase its production capacity for
certain drugs commensurate with market demand;
* the possibility that the supply of incoming materials may be delayed or
become unavailable and that the quality of incoming materials may be
substandard and not detected;
* the possibility that the Company may fail to maintain appropriate quality
standards throughout its internal and third-party supply network, or to
comply with current manufacturing best practices, rules or other applicable
regulations;
* disruptions to supply chain continuity as a result of natural or man-made
disasters at the Company's facilities or at one or more of its third-party
suppliers' facilities; and
* failure to maintain the integrity of the Company's supply chains against
fraudulent and criminal acts, such as intentional product adulteration,
diversion, theft, or counterfeiting activities.
Also, as noted above, the Company has also entered into many agreements with
third-parties for the provision of goods and services to enable it to
manufacture its products. If these third-parties are unable to manufacture
products, or provide these goods and services, in each case in accordance with
its respective contractual obligations, the Company's ability to manage its
manufacturing processes or to operate its business, including to continue the
development or commercialization of its products as planned or on a commercial
basis, may be adversely impacted.
The manufacture of the Company's products is subject to extensive oversight by
various regulatory agencies. Regulatory approvals or interventions associated
with changes to manufacturing sites, ingredients or manufacturing processes
could lead to significant delays, an increase in operating costs, lost product
sales, an interruption of research activities or the delay of new product
launches
Pharmaceutical and device manufacturing sites must be inspected and approved by
regulatory agencies such as the FDA and similar agencies in other countries.
Active ingredients, excipients and packaging materials used in the
manufacturing process must be obtained from sources approved by regulatory
agencies.
The development, approval and manufacturing of the Company's products depend on
the ability to procure ingredients and packaging materials from approved
sources and for the manufacturing process to be conducted at approved sites.
Changes of manufacturer or changes of source of ingredients or packaging
materials must generally be approved by the regulatory agencies, which will
involve testing and additional inspections to ensure compliance with the
applicable regulatory agency's regulations and standards. The need to qualify a
new manufacturer or source of ingredients or packaging materials can take a
significant amount of time. Should it become necessary to change a manufacturer
or supplier of ingredients or packaging materials, or to qualify an additional
supplier, the Company may not be able do so quickly, or at all, which could
delay or disrupt the manufacturing process.
U.S.-based manufacturers must be registered with the DEA and similar regulatory
authorities in other countries if they handle controlled substances. Certain of
the Company's products, including ADDERALL XR and VYVANSE, contain ingredients
which are controlled substances subject to quotas managed by the DEA. As a
result, the Company's procurement and production quotas may not be sufficient
to meet commercial demand.
Certain of the Company's products, including but not limited to CINRYZE,
ELAPRASE, REPLAGAL, FEIBA, HYQVIA and GAMMAGARD LIQUID and VPRIV are
manufactured using highly complex biological processes. The complexity of the
manufacturing results in a number of risks, including the risk of microbial
contamination. Additionally, some of the Company's therapies, including
CINRYZE, FEIBA, HYQVIA and GAMMAGARD LIQUID are derived from human plasma, and
are therefore subject to the risk of biological contamination inherent in
plasma-derived products.
The failure to obtain regulatory approvals promptly or at all and/or regulatory
interventions associated with changes to manufacturing sites, ingredients or
manufacturing processes could lead to significant delays, an increase in
operating costs, lost product sales, an interruption of research activities,
the delay of new product launches or constraints on manufacturing output, all
of which could have a material adverse effect on the Company's revenues,
financial condition and results of operations.
The nature of producing plasma-based therapies may prevent Shire from timely
responding to market forces and effectively managing its production capacity
The production of plasma-based therapies is a lengthy and complex process, and
Shire sources its plasma both internally and externally through suppliers.
Efforts to increase the collection of plasma or the production of plasma-based
therapies may include the construction and regulatory approval of additional
plasma collection facilities and plasma fractionation facilities. In connection
with the combination with Baxalta, the Company acquired a yet to be completed
state-of-the-art manufacturing facility near Covington, Georgia to support
growth of its plasma-based treatments. The Company has completed construction
of all buildings associated with the Covington facility and is going through a
rigorous commissioning and testing process to receive licensing from the FDA
and international regulatory agencies. Commercial production at the facility
remains scheduled to begin in 2018. The development of such facilities involves
a lengthy regulatory process and is highly capital intensive. In addition,
access to and transport and use of plasma may be subject to restrictions by
governmental agencies both inside and outside the United States. As a result,
the Company's ability to match its collection and production of plasma-based
therapies to market demand is imprecise and may result in a failure to meet
market demand for its plasma-based therapies or, alternatively, an oversupply
of inventory. Failure to meet market demand for Shire's plasma-based therapies
may result in customers transitioning to available competitive products
resulting in a loss of market share or customer confidence. In the event of an
oversupply, Shire may be forced to lower the prices it charges for some of its
plasma-based therapies, close collection and processing facilities, record
asset impairment charges or take other action which could have a material
adverse effect on the Company's revenues, financial condition and results of
operations.
The Company has a portfolio of products in various stages of research and
development. The successful development of these products is highly uncertain
and requires significant expenditures and time, and there is no guarantee that
these products will receive regulatory approval
Products that initially appear promising in research or development may be
delayed or fail to reach later stages of development as:
* preclinical or clinical tests may show the product to lack safety or
efficacy;
* delays may be caused by: slow enrollment in clinical studies; regulatory
requirements for clinical trial drug supplies; extended length of time to
achieve study endpoints; additional time requirements for data analysis or
dossier preparation; time required for discussions with regulatory
agencies, including regulatory agency requests for additional preclinical
or clinical data; regulatory agencies due to staffing or resource
limitations; analysis of or changes to study design; unexpected safety,
efficacy, or manufacturing issues; shared control with collaborative
partners in the planning and execution of the product development, scaling
of the manufacturing process, or obtaining approval for manufacturing;
* manufacturing issues, pricing or reimbursement issues, or other factors may
render the product economically unviable;
* the proprietary rights of others and their competing products and
technologies may prevent the product from being developed or
commercialized; or
* submission of an application for regulatory approval of any of the
Company's product candidates may be subjected to lengthy review and
ultimately rejected.
Success in preclinical and early clinical trials does not ensure that
late-stage clinical trials will be successful. Clinical results are frequently
susceptible to varying interpretations that may delay, limit, or prevent
regulatory approvals. The length of time necessary to complete clinical trials
and to submit an application for marketing approval for a final decision by a
regulatory authority varies significantly and may be difficult to predict.
Moreover, once an application is submitted, additional data may be sought by
regulators or an application may be rejected. The Company has a range of
programs in its product pipeline that are in registration or entering
late-stage clinical development, including, but not limited to SHP643 for the
treatment of HAE, which is in Phase 3 clinical trials, SHP465 for the treatment
of ADHD, which is currently in registration, SHP621 for the treatment of EOE,
which is in Phase 3 clinical trials, and SHP647 for the treatment of IBD, which
is in Phase 2. If the Company's large-scale or late-stage clinical trials for a
product are not successful, the Company will not recover its substantial
investments in that product.
In addition, even if the products receive regulatory approval, they remain
subject to ongoing regulatory requirements, including, for example, obligations
to conduct additional clinical trials or other non-clinical testing, changes to
the product label (which could impact its marketability and prospects for
commercial success), new or revised requirements for manufacturing,
written notifications to physicians, or product recalls or withdrawals.
The actions of certain customers could affect the Company's ability to sell or
market products profitably. Fluctuations in buying or distribution patterns by
such customers can adversely affect the Company's revenues, financial
conditions or results of operations
A considerable portion of the Company's product sales are made to major
pharmaceutical wholesale distributors, as well as to large pharmacies, in both
the U.S. and Europe. For the year ended December 31, 2016, 38 percent of the
Company's product sales were attributable to three customers in the United
States: AmerisourceBergen Drug Corp, McKesson Corp. and Cardinal Health, Inc.
In the event of financial failure of any of these customers there could be a
material adverse effect on the Company's revenues, financial condition or
results of operations. The Company's revenues, financial condition or results
of operations may also be affected by fluctuations in customer buying or
distribution patterns. These fluctuations may result from seasonality, pricing,
wholesaler inventory objectives, or other factors. A significant portion of the
Company's revenues for certain products for treatment of rare diseases are also
concentrated within a small number of customers. Changes in the buying patterns
of those customers may have an adverse
effect on the Company's revenues, financial condition or results of operations.
Failure to comply with laws and regulations governing the sales and marketing
of its products could materially impact Shire's revenues and profitability
The Company engages in various marketing, promotional and educational
activities pertaining to, as well as the sale of, pharmaceutical products and
medical devices in a number of jurisdictions around the world. The promotion,
marketing and sale of pharmaceutical products and medical devices is highly
regulated and the sales and marketing practices of market participants, such as
the Company, have been subject to increasing supervision by governmental
authorities, and Shire believes that this trend will continue.
In the United States, the Company's sales and marketing activities are
monitored by a number of regulatory authorities and law enforcement agencies,
including the U.S. Department of HHS, the FDA, the U.S. Department of Justice,
the SEC and the DEA. These authorities and agencies and their equivalents in
countries outside the United States have broad authority to investigate market
participants for potential violations of laws relating to the sale, marketing
and promotion of pharmaceutical products and medical devices, including the
False Claims Act, the Anti-Kickback Statute, the UK Bribery Act of 2010 and the
Foreign Corrupt Practices Act, among others, for alleged improper conduct,
including corrupt payments to government officials, improper payments to
medical professionals, off-label marketing of pharmaceutical products and
medical devices, and the submission of false claims for reimbursement by the
federal government. Healthcare companies may also be subject to enforcement
actions or prosecution for such improper conduct. Any inquiries or
investigations into the operations of, or enforcement or other regulatory
action against, the Company by such authorities could result in significant
defense costs, fines, penalties and injunctive or administrative remedies,
distract management to the detriment of the business, result in the exclusion
of certain products, or the Company, from government reimbursement programs or
subject the Company to regulatory controls or government monitoring of its
activities in the future. The Company is also subject to certain ongoing
investigations by governmental agencies. For further information, see Note 26,
Legal and Other Proceedings, to the Consolidated Financial Statements.
The Company's products and product candidates face substantial competition in
the product markets in which it operates
Shire faces substantial competition throughout its business from international
and domestic biopharmaceutical companies of all sizes. Competition is primarily
focused on cost-effectiveness, price, service, product effectiveness and
quality, patient convenience and technological innovation.
Competition may increase further as existing competitors enhance their
offerings or additional companies enter Shire's markets or modify their
existing products to compete directly with Shire's products. If Shire's
competitors respond more quickly to new or emerging technologies and changes in
customer requirements, the Company's products may be rendered obsolete or
non-competitive. If Shire's competitors develop more effective or affordable
products, or achieve earlier patent protection or product commercialization
than the Company does, its operations will likely be negatively affected. If
Shire is forced to reduce its prices due to increased competition, Shire's
business could become less profitable. The Company's sales could be adversely
affected if any of its contracts with customers (including with hospitals,
treatment centers and other healthcare providers, distributors, group
purchasing organizations and integrated delivery networks) are terminated due
to increased competition or otherwise.
The Company's patented products are subject to significant competition from
generics
In addition to the competition referred to above, Shire faces significant
competition from the manufacturers of generic drug products in all of its major
markets and in the future may face competition with respect to its biologic and
biosimilar products. The introduction of lower-priced generics by the Company's
competitors
or their successful efforts in aggressively commercializing and marketing their
alternative drug products pose significant challenges to maintaining Shire's
market share, revenues and sales growth.
For example, since 2009, generic versions of ADDERALL XR have been marketed
and, since 2014, generic versions of INTUNIV have been marketed in the United
States. As a result, product sales of ADDERALL XR and INTUNIV declined.
Factors which could cause further or more rapid declines in Shire's product
sales include:
* the loss or earlier than expected expiration of intellectual property
rights or regulatory exclusivity periods with respect to the Company's
branded products;
* generic or authorized generic versions of these products capturing more of
Shire's branded market share than expected;
* lower prices and the actual or perceived greater effectiveness or safety of
generic drug products relative to Shire's branded products;
* the FDA approving additional ANDAs for these products or additional ANDAs
for generic versions of these products which, if launched, would further
reduce branded market share or impact the amount of Shire's authorized
generic product sales;
* changes in reimbursement policies of third-party payers; or
* changes to the level of sales deductions for branded Shire products for
private or public payers.
Should any of the above developments occur, the resulting generic competition
could reduce sales and market share of Shire's branded products and have a
material adverse effect on the Company's revenues, financial condition or
results of operations.
Adverse outcomes in legal matters and other disputes, including the Company's
ability to enforce and defend patents and other intellectual property rights
required for its business, could have a material adverse effect on the
Company's revenues, financial condition or results of operations
During the ordinary course of its business the Company may be involved in
claims, disputes and litigation with third-parties, employees, regulatory
agencies, governmental authorities and other parties. The range of matters of a
legal nature that might arise is extremely broad but could include, without
limitation, intellectual property claims and disputes, product liability claims
and disputes, regulatory litigation, contract claims and disputes, employment
claims and disputes, and tax or other governmental agency audits and disputes.
Any unfavorable outcome in such matters could adversely impact the Company's
ability to develop or commercialize its products, adversely affect the product
sales and profitability of existing products, subject the Company to
significant defense costs, fines, penalties, audit findings and injunctive or
administrative remedies, distract management to the detriment of the business,
result in the exclusion of certain products, or the Company, from government
reimbursement programs or subject the Company to regulatory controls or
government monitoring of its activities in the future. Any such outcomes could
have a material adverse effect on the Company's revenue, financial condition or
results of operations. For further information, see Note 26, Legal and Other
Proceedings, to the Consolidated Financial Statements.
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 knowhow and technological innovations and contractual arrangements
with third-parties to maintain its competitive position. The failure to obtain,
maintain, enforce or defend such intellectual property rights, for any reason,
could allow third-parties to make competing products or impact the Company's
ability to develop, manufacture and market its own products on a commercially
viable basis, or at all, which could have a material adverse effect on the
Company's revenues, financial condition or results of operations.
The Company intends to enforce its patent rights vigorously and believes that
its commercial partners, licensors and third-party manufacturers intend to
enforce vigorously those patent rights they have licensed to the Company.
However, the Company's patent rights, and patent rights that the Company has
licensed, may not provide valid patent protection sufficiently broad to prevent
any third-party from developing, using or commercializing products that are
similar or functionally equivalent to the Company's products or technologies.
These patent rights may be challenged, revoked, invalidated, infringed or
circumvented by third-parties. Laws relating to such rights may in the future
also be changed or withdrawn.
Additionally, the Company's products, or the technologies or processes used to
formulate or manufacture those products may now, or in the future, infringe the
patent rights of third-parties. It is also possible that third-parties will
obtain patent or other proprietary rights that might be necessary or useful for
the development, manufacture or sale of the Company's products. The Company may
need to obtain licenses for intellectual property rights from others and may
not be able to obtain these licenses on commercially reasonable terms, if at
all.
The Company also relies on trade secrets and other unpatented 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 Note 26, Legal and Other Proceedings, to
the Consolidated Financial Statements.
The Company faces intense competition for highly qualified personnel from other
companies and organizations
The Company relies on recruiting and retaining highly skilled employees to meet
its strategic objectives. The Company faces intense competition for highly
qualified personnel and the supply of people with the requisite skills may be
limited, generally or geographically. The range of skills required and the
geographies in which they are required by the Company may also change over time
as Shire's business evolves. If the Company is unable to retain key personnel
or attract new personnel with the requisite skills and experience, it could
adversely affect the implementation of the Company's strategic objectives and
ultimately adversely impact the Company's revenues, financial condition or
results of operations. Recent acquisitions by the Company, including without
limitation, the Dyax and Baxalta acquisitions, and the terminated acquisition
by AbbVie, Inc. ("AbbVie") as well as internal reorganizations and transitions
of our offices in Pennsylvania, the United Kingdom and other locations, may
increase the Company's difficulty in recruiting and retaining employees.
Failure to successfully execute or attain strategic objectives from the
Company's acquisitions and growth strategy may adversely affect the Company's
financial condition and results of operations
The Company's business depends to a significant extent on its ability to
improve and expand its product pipeline through strategic acquisitions. Such
improvements and expansions, however, are subject to the ability of the
Company's management to effectively identify appropriate strategic targets and
effectuate the contemplated transactions, the availability and relative cost of
acquisition opportunities as well as competition from other pharmaceutical
companies seeking similar opportunities.
Moreover, even when such transactions are successfully executed, the Company
may face subsequent difficulties in integrating the operations, infrastructure
and personnel of acquired businesses and may experience unanticipated risks or
liabilities that were not discovered, accurately disclosed or sufficiently
assessed during the transactions' due diligence process. Finally, even
successfully acquired and integrated businesses may ultimately fail or fall
short of achieving the Company's strategic objectives for the transaction over
the long term.
Any failures in the execution of a transaction, in the integration of an
acquired business or in achieving the Company's strategic objectives, including
expected synergies, with respect to such transactions could result in slower
growth, higher than expected costs, the recording of asset impairment charges
and other actions which could adversely affect the Company's business,
financial condition and results of operations.
The Company has recently completed a number of strategic acquisitions,
including Dyax in January 2016 and Baxalta in June 2016. Furthermore, the
Company is currently exploring, and expects to continue to explore,
opportunities for additional strategic acquisitions or combinations in the
future. Proposed and completed acquisitions, as well as any future
acquisitions, each entail various risks, which include but are not limited to:
* a proposed acquisition may not be consummated due to the occurrence of an
event, change or other circumstances that gives rise to the termination of
the applicable agreement;
* a governmental, regulatory, board, shareholder or other approval required
for a proposed acquisition may not be obtained, or may be obtained subject
to conditions that are not anticipated, or another condition to the closing
of a proposed acquisition may not be satisfied, resulting in delays or
ultimate failure of consummating a proposed acquisition;
* shareholders may initiate legal action to prevent or delay consummation of
a proposed acquisition or to seek judicial reevaluation of a proposed
acquisition's consideration;
* a lengthy, uncertain process when pursuing a potential combination could
disrupt relationships between Shire and a target company's customers,
suppliers and employees, distract Shire's or a target company's management
from operating its business, and could lead to additional and unanticipated
costs;
* a target company may be unable to retain and hire key personnel and/or
maintain its relationships with customers, suppliers and other business
partners pending the consummation of the proposed acquisition by Shire;
* after the consummation of an acquisition, the Company may be unable to
retain the acquired company's key personnel, existing customers, suppliers
and other business partners or attract new customers;
* the businesses of an acquired company may be otherwise disrupted by the
acquisition, including increased costs and diversion of its management's
time and resources;
* failure to achieve the targeted growth and expected benefits of the
acquisition if sales of an acquired company's products are lower than
anticipated, or these products cannot be successfully commercialized or
cannot obtain necessary regulatory approvals;
* any integration of an acquired company into Shire could be complex and
time-consuming, and difficulties in effectuating these integrations may
lead to the combined companies not being able to realize the expected
operating efficiencies, cost savings, revenue enhancements, synergies or
other benefits in the timeframe anticipated, or at all;
* failure to successfully obtain regulatory approval of an acquired company's
late-stage pipeline assets in a timely manner or at all, or to successfully
commercialize such products after regulatory approval has been obtained;
* undiscovered or unanticipated risks and liabilities, including legal and
compliance related liabilities, may emerge in connection with an
acquisition, or may be higher than anticipated; and
* even after successfully completing an acquisition and integrating the
acquired company's businesses into Shire, the anticipated benefits of the
combinations, including expected synergies, may ultimately prove less than
anticipated.
Shire's growth strategy depends in part upon its ability to expand its product
portfolio through external collaborations, which, if unsuccessful, may
adversely affect the development and sale of its products
Shire intends to continue to explore opportunities to enter into collaboration
agreements and external alliances with other parties. These third-party
collaborators may include other biopharmaceutical companies, academic and
research institutions, governments and government agencies and other public and
private research organizations.
These third-party collaborators are often directly responsible for clinical
development under these types of arrangements, and the Company does not have
the same level of decision-making capabilities for the prioritization and
management of development-related activities as it does for its internal
research and development activities. Failures by these partners to meet their
contractual, regulatory, or other obligations to the Company, or any disruption
in the relationships between the Company and these partners, could have a
material adverse effect on the Company's pipeline and business. In addition,
the Company's collaborative relationships for research and development extend
for many years and may give rise to disputes regarding the relative rights,
obligations and revenues of Shire and its partners, including the ownership of
intellectual property and associated rights and obligations. These could result
in the loss of intellectual property rights or other intellectual property
protections, delay the development and sale of potential pharmaceutical
products, and lead to lengthy and expensive litigation or arbitration.
Long-term public-private partnerships with governments and government agencies,
including in certain emerging markets, may include technology transfers to
support local manufacturing capacity and technical expertise. Shire cannot
predict whether these types of transfers and arrangements will become more
common in the future.
These types of technology transfers and similar arrangements could have a
material adverse effect on the Company's results of operations as a result of
lost exclusivity with respect to certain manufacturing and technical
capabilities, particularly if this model becomes widely used. Public-private
partnerships are also subject to risks of doing business with governments and
government agencies, including risks related to sovereign immunity, shifts in
the political environment, changing economic and legal conditions and social
dynamics.
A slowdown of global economic growth, or economic instability of countries in
which the Company does business, could have negative consequences for the
Company's business and increase the risk of non-payment by the Company's
customers
Growth of the global pharmaceutical market has become increasingly tied to
global economic growth. Accordingly, a substantial and lasting slowdown of the
global economy, or major national economies, could negatively affect growth in
the markets in which the Company operates. Such a slowdown, or any
resultant austerity measures adopted by governments in response to a slowdown,
could result in national governments making significant cuts to their public
spending, including national healthcare budgets, or reducing the level of
reimbursement they are willing and able to provide to the Company for its
products and, as a result, adversely affect the Company's revenues, financial
condition or results of operations.
A slowdown of a nation's economy could also lead to financial difficulties for
some of the Company's significant customers, including national governments,
and result in a greater risk of delayed orders or payments, defaults or
non-payments of outstanding payment obligations by the Company's customers in
that country, which could adversely affect the Company's revenues, financial
condition or results of operations.
Changes in foreign currency exchange rates and interest rates could have a
material adverse effect on Shire's operating results and liquidity
Shire reports its financial results in U.S. Dollars, but generates a
substantial portion of its revenue (approximately 33 percent of its total
revenue in 2016) outside the United States. As a result, Shire's financial
results may be adversely affected by fluctuations in foreign currency exchange
rates. Shire cannot predict with any certainty changes in foreign currency
exchange rates or the ability of the Company to mitigate these risks. Shire may
experience additional volatility as a result of inflationary pressures and
other macroeconomic factors in certain emerging market countries. Shire is also
exposed to changes in interest rates, and Shire's ability to access the money
markets and capital markets could be impeded if adverse liquidity market
conditions occur.
For discussion of the financial impact of foreign exchange rate and interest
rate fluctuations, and the ways and extent to which Shire attempts to mitigate
such impact. For details see note 16, Financial Instruments, to the
Consolidated Financial Statements.
The Company is subject to evolving and complex tax laws, which may result in
additional liabilities that may adversely affect the Company's financial
condition or results of operations
The Company is subject to evolving and complex tax laws in the jurisdictions in
which it operates, and routinely obtains advice on matters, including the tax
treatment of the break fee received in connection with the terminated offer for
Shire by AbbVie in 2014. Significant judgment is required in determining the
Company's tax liabilities and the Company's tax returns are periodically
examined by various tax authorities. The Company regularly assesses the
likelihood of outcomes resulting from these examinations to determine the
adequacy of its accrual for tax contingencies; however, due to the complexity
of tax matters, the ultimate resolution of any tax matters may result in
payments greater or less than amounts accrued. In addition, the Company may be
affected by changes in tax laws, including tax rate changes, new tax laws, and
revised tax law interpretations in domestic and foreign jurisdictions and
between jurisdictions, including by the EU.
If a marketed product fails to work effectively or causes adverse side effects,
this could result in damage to the Company's reputation, the withdrawal of the
product and legal action against the Company
Unanticipated side effects or unfavorable publicity from complaints concerning
any of the Company's products, or those of its competitors, could have an
adverse effect on the Company's ability to obtain or maintain regulatory
approvals or successfully market its products. The testing, manufacturing,
marketing and sales of pharmaceutical products and medical devices entail a
risk of product liability claims, product recalls, litigation and associated
adverse publicity. The cost of defending against such claims is expensive even
when the claims are not merited. A successful product liability claim against
the Company could require the Company to pay a substantial monetary award. The
Company does not carry product liability insurance for its products due to the
Company's analysis of the risk, frequency and severity of a loss and the cost
of insurance for the risk. Accordingly, if the Company does not have sufficient
financial resources to satisfy a liability resulting from such a claim or to
fund the legal defense of such a claim, it could become insolvent. Moreover, an
adverse judgment in a product liability suit could generate substantial
negative publicity about the Company's products and business and inhibit or
prevent commercialization of other products.
The Company is dependent on information technology and its systems and
infrastructure face certain risks, including from service disruptions, the
loss of sensitive or confidential information, cyber-attacks and other security
breaches or data leakages that could have a material adverse effect on the
Company's revenues, financial condition or results of operations
The Company relies to a large extent upon sophisticated information technology
systems to operate its businesses. In the ordinary course of business, the
Company collects, stores and transmits large amounts of confidential
information (including, but not limited to, personal information and
intellectual property), and it is critical that the Company does so in a secure
manner to maintain the confidentiality and integrity of such confidential
information. The size and complexity of the Company's information technology
and information security systems, and those of third-party vendors with whom
the Company contracts (and the large amounts of confidential information that
is stored on them), make such systems potentially vulnerable to service
interruptions or to security breaches from inadvertent or intentional actions
by the Company's employees or vendors, or from attacks by malicious
third-parties.
The Company and its vendors' sophisticated information technology operations
are spread across multiple,
sometimes inconsistent platforms, which pose difficulties in maintaining data
integrity across systems. The ever-increasing use and evolution of technology,
including cloud-based computing, creates opportunities for the unintentional
dissemination or intentional destruction of confidential information stored in
the Company's systems. The Company and its vendors could also be susceptible to
third-party attacks on their information security systems, which attacks are of
ever-increasing levels of sophistication and are made by groups and individuals
with a wide range of motives and expertise, including criminal groups,
"hackers" and others. While the Company has taken steps to protect such
information and invested heavily in information technology, there can be no
assurance that these efforts will prevent service interruptions or security
breaches in its systems, the loss of data or other confidential information due
to a lack of redundant backup systems, or the unauthorized or inadvertent
wrongful use or disclosure of confidential information that could adversely
affect the Company's business operations or result in the loss, dissemination,
or misuse of critical or sensitive information. A breach of the Company's
security measures or the accidental loss, inadvertent disclosure, unapproved
dissemination, misappropriation or misuse of trade secrets, proprietary
information, or other confidential information, whether as a result of theft,
hacking, fraud, trickery or other forms of deception, or for any other cause,
could enable others to produce competing products, use the Company's
proprietary technology or information, and/or adversely affect the Company's
business position. Further, any such interruption, security breach, loss or
disclosure of confidential information, could result in financial, legal,
business, and reputational harm to the Company and could have a material
adverse effect on the Company's revenues, financial condition or results of
operations.
In addition, legislators and/or regulators in countries in which the Company
operates are increasingly adopting or revising privacy, information security
and data protection laws, as well as focusing on increased privacy-related
enforcement activity, that potentially could have a significant impact on the
Company's current and planned privacy, data protection and information
security-related practices, its collection, use, sharing, retention and
safeguarding of consumer and/or employee information, and some of its current
or planned business activities.
Shire faces risks relating to the expected exit of the United Kingdom from the
European Union.
On June 23, 2016, the United Kingdom held a remain-or-leave referendum on the
United Kingdom's membership within the European Union, the result of which
favored the exit of the United Kingdom from the
European Union ("Brexit"). A process of negotiation will likely determine the
future terms of the United Kingdom's relationship with the European Union, as
well as whether the United Kingdom will be able to continue to benefit from the
European Union's free trade and similar agreements. The timing of the Brexit
and potential impact of Brexit on Shire's market share, sales, profitability
and results of operations is unclear. Depending on the terms of Brexit,
economic conditions in the United Kingdom, the European Union and global
markets may be adversely affected by reduced growth and volatility. The
uncertainty before, during and after the period of negotiation is also expected
to have a negative economic impact and increase volatility in the markets,
particularly in the eurozone. Such volatility and negative economic impact
could, in turn, adversely affect the Company's revenues, financial condition or
results of operations.
Risks Related to the Combination with Baxalta Incorporated
The Company may not successfully integrate the businesses of Shire and Baxalta
Achieving the anticipated benefits of the combination of Shire and Baxalta will
depend in part upon whether the two companies integrate their businesses in an
effective and efficient manner. The Company may not be able to accomplish this
integration process successfully or realize the expected synergies as planned.
The integration of businesses is complex and time-consuming. The difficulties
that could be encountered include the following:
* integrating personnel, operations and systems, while maintaining focus on
selling and promoting existing and newly acquired or produced products;
* coordinating geographically dispersed organizations;
* distraction of management and employees from operations;
* changes or conflicts in corporate culture;
* management's inability to manage a substantial increase in the number of
employees;
* management's inability to train and integrate personnel, who may have
limited experience with the respective companies' business lines and
products, and to deliver a consistent message regarding diseases treated by
the Company;
* retaining existing customers and attracting new customers;
* retaining existing employees and attracting new employees;
* maintaining business relationships; and
* inefficiencies associated with the integration and management of the
operations of the two companies.
In addition, there have been, and will continue to be, integration costs and
non-recurring transaction costs (such as fees paid to legal, financial,
accounting and other advisors and other fees paid in connection with the
combination) associated with the combination, including costs associated with
combining operations and achieving the expected synergies as planned, and such
costs may be significant.
An inability to realize the full extent of the anticipated benefits of the
combination of Shire and Baxalta, including estimated cost synergies, as well
as any delays encountered in the integration process and realizing such
benefits, could have an adverse effect upon the revenues, level of expenses
and operating results of the Company, which may materially adversely affect
the value of the Company's Ordinary Shares and American Depository Shares
("ADSs").
Shire has incurred significant additional indebtedness in connection with the
acquisition, which has decreased the Company's business flexibility and
increased its interest expense. All of the Company's debt obligations have
priority over the Company's Ordinary Shares and ADSs with respect to payment in
the event of a liquidation, dissolution or winding up
As of December 31, 2016, Shire had gross debt of approximately $23 billion
comprising $12.1 billion of Senior Notes issued in September 2016, $5 billion
of Baxalta notes acquired with the acquisition
of Baxalta, $5 billion outstanding borrowing under the term loan facility, $450
million outstanding borrowing under the $2.1 billion Revolving Credit Facility
and certain capital lease and other debt obligations.
The Company's aggregate indebtedness could have the effect, among other things,
of reducing the Company's flexibility to respond to changing business and
economic conditions. The Company is
required to abide by certain covenants within the various financing
arrangements, which if not adhered to, would require immediate repayment of the
indebtedness.
Moreover, the Company may be required to raise additional financing. The
Company's ability to arrange additional financing and the costs of that
financing will depend on, among other factors, the Company's financial position
and performance, as well as prevailing market conditions and other factors
beyond Shire's control.
In any liquidation, dissolution or winding up of Shire, the Company's Ordinary
Shares and ADSs would rank below all debt claims against Shire or any of its
subsidiaries. As a result, holders of the Company's Ordinary Shares and ADSs
will not be entitled to receive any payment or other distribution of assets
upon any
liquidation or dissolution until after Shire's obligations to its debt holders,
which rank senior to the Company's Ordinary Shares and ADSs, have been
satisfied.
Uncertainties associated with the combination may cause a loss of employees and
may otherwise affect the future business and operations of Shire and the
combined company
Uncertainty about the effect of the combination on employees and customers may
have an adverse effect on the Company following the combination. These
consequent uncertainties may impair the Company's ability to retain and
motivate key personnel and could also cause customers, suppliers, licensees,
partners and other business partners to defer entering into contracts with,
making other decisions concerning, or seeking to change existing business
relationships with the Company. Because the Company depends on the experience
and industry knowledge of their executives and other key personnel to execute
their business plans, the Company may be unable to meet its strategic
objectives.
Baxalta only operated as an independent company from July 1, 2015 until the
consummation of its merger with Shire. on June 3, 2016, and Baxalta's
historical financial information is not necessarily representative of the
results that Baxalta would have achieved as a separate, publicly traded
company, and may not be a reliable indicator of future results of Baxalta.
Moreover, any pro forma
financial information published by the Company is not necessarily
representative of the results that the Company would have achieved, and may not
be a reliable indicator of future results.
Any historical financial information about Baxalta prior to July 1, 2015 refers
to Baxalta's business as operated by and integrated with Baxter. Baxalta's
historical and pro forma financial information for such
periods was derived from the Consolidated Financial Statements and accounting
records of Baxter. In addition, certain pro forma financial information for the
Company has incorporated Baxalta's historical
financial information for such periods. Accordingly, such historical and pro
forma financial information of Baxalta or the Company does not necessarily
reflect the financial condition, results of operations or cash flows that
Baxalta would have achieved as a separate, publicly traded company during the
periods presented, or those that Shire would have achieved had the combination
occurred as assumed for the preparation of the pro forma financial information.
As a result, the Company's pro forma financial information is not necessarily
representative of the results that the Company will achieve after the merger
with Baxalta, and may not be a reliable indicator of future results.
Baxter may not satisfy its obligations under various transaction agreements
that have been executed as part of the separation or Shire may fail to have
necessary systems and services in place when certain of the transaction
agreements expire
In connection with Baxalta's separation from Baxter, the parties entered into
various agreements, including a separation and distribution agreement, a
transition services agreement, a tax matters agreement, a manufacturing and
supply agreement, an employee matters agreement, license agreements and
commercial agreements. The separation and distribution agreement, the tax
matters agreement and employee matters agreement determined the allocation of
assets and liabilities between the companies following the separation for those
respective areas and provide for indemnifications related to liabilities and
obligations. The transition services agreement sets forth certain services to
be performed by each company for the benefit of the other for a period of time
after the separation. Baxalta and now Shire will rely on Baxter to satisfy its
performance and payment obligations under these agreements. If Baxter does not
satisfy its obligations under these agreements, including its indemnification
obligations, Shire may not be able to meet its financial reporting requirements
and/or could incur operational difficulties or losses as they relate to
Baxalta's businesses. If Shire is unable to successfully integrate the Baxalta
businesses into Shire's systems and services, or if Shire does not have
agreements with other providers of these services once certain transaction
agreements expire, Shire may not be able to operate the Baxalta businesses
effectively and Shire's profitability may decline.
The acquisition of Baxalta could result in significant liability to the Company
if the combination causes the spin-off of Baxalta from Baxter or a Later
Distribution, as defined below, to be taxable
In connection with the signing of the merger agreement, Baxter, Shire and
Baxalta entered into the Letter Agreement, which, among other things,
supplement certain aspects of the tax matters agreement referenced above. Under
the Letter Agreement, from and after the closing of the merger, Baxalta agreed
to indemnify, and the Company agreed to guarantee such indemnity to, Baxter and
each of its affiliates and each of their respective officers, directors and
employees against certain tax-related losses attributable to, or resulting
from, in whole or in part, the merger. If the contribution of property by
Baxter in one or more transfers to Baxalta in exchange for shares of Baxalta
common stock, cash, and the assumption of certain liabilities, together with
the distribution by Baxter on July 1, 2015 of approximately 80.5 percent of the
shares of Baxalta common stock to shareholders of Baxter (the "spin-off"),
Baxter's distribution of cash received from Baxalta to its creditors and/or a
Later Distribution, collectively, the "Baxter Transactions", are determined to
be taxable as a result, in whole or in part, of the merger (for example, if the
merger as deemed to be part of a plan, or series of related transactions, that
includes the Baxter Transactions), Baxter and its shareholders could incur
significant tax liabilities. Under the tax matters agreement, and the Letter
Agreement, Baxalta and the Company may be required to indemnify Baxter for any
such tax liabilities. Baxter's waiver of the provisions under the tax matters
agreement restricting Baxalta's ability to enter into and consummate the merger
will not relieve Baxalta or the Company of its obligation to indemnify Baxter
if the merger causes any of the Baxter Transactions to be taxable.
In connection with the signing and closing of the merger agreement, the Company
received an opinion from Cravath, Swaine & Moore LLP ("Cravath"), tax counsel
to the Company, to the effect that the merger will not cause the Baxter
Transactions to fail to qualify as tax-free to Baxter and its shareholders
under Sections 355, 361 and 368(a)(1)(D) of the Internal Revenue Code of 1986,
as amended.
The tax opinions referred to in the immediately preceding paragraph are based
upon various factual representations and assumptions, as well as certain
undertakings made by the Shire, Baxter and Baxalta. If any of the factual
representations or the assumptions in the tax opinions are untrue or incomplete
in any material respect, an undertaking is not complied with or the facts upon
which the tax opinions are based are materially different from the facts at the
time of the merger, the opinions may not be valid. Moreover, opinions of
counsel are not binding on the Internal Revenue Service (the "IRS"). As a
result, the conclusions expressed in the tax opinions could be challenged by
the IRS. None of Shire, Baxalta or Baxter has requested a ruling from the IRS
regarding the impact of the merger on the tax treatment of the Baxter
Transactions, since such rulings are not made by the IRS. Further, the tax
opinions do not address all tax aspects of the spin-off, a Later Distribution
and other related transactions and it is possible the Company may be obligated
to indemnify Baxter despite the continuing validity of the tax opinions.
The Company's indemnification obligations to Baxter and its affiliates,
officers, directors and employees under the tax matters agreement and Letter
Agreement are not limited in amount or subject to any cap. If Baxalta or the
Company is required toindemnify Baxter and its affiliates and their respective
officers, directors and employees under the circumstances set forth in the tax
matters agreement, as supplemented by the Letter Agreement, it could have a
material adverse effect on the Company.
References to the "Later Distributions" includes the following transactions
that were undertaken by Baxter prior to the closing of the merger: (i) two
debt-forequity exchanges (and related underwritten offerings) with respect to
Baxalta shares, (ii) an offer to exchange Baxter shares for Baxalta shares, and
(iii) a contribution of Baxalta shares to Baxter's U.S. pension fund, which, in
each case, were undertaken prior to the earlier of any Baxalta or Company
stockholder vote with respect to the merger and that were intended to be part
of a plan that includes the spin-off.
In connection with the merger with Baxalta, the separation and the Later
Distributions could result in significant liability to the Company due to
Baxalta's spin-off from Baxter
The Baxter Transactions are intended to qualify for tax-free treatment to
Baxter and its stockholders under Sections 355, 361, and 368(a)(1)(D) of the
Code. Completion of the separation was conditioned upon,
among other things, the receipt of a private letter ruling from the IRS
regarding certain issues relating to the tax-free treatment of the Baxter
Transactions. Although the IRS private letter ruling is generally binding on
the IRS, the continuing validity of such ruling is subject to the accuracy of
factual representations and assumptions made in the ruling. Completion of the
initial distribution of Baxalta shares on July 1, 2015 was also conditioned
upon Baxter's receipt of a tax opinion from KPMG LLP, or KPMG regarding certain
aspects of the separation not covered by the IRS private letter ruling. The
opinion was based upon various factual representations and assumptions, as well
as certain undertakings made by Baxter and Baxalta.
If any of the factual representations or assumptions in the IRS private letter
ruling or tax opinion are untrue or incomplete in any material respect, an
undertaking is not complied with, or the facts upon which the IRS private
letter ruling or tax opinion are based are materially different from the actual
facts relating to the Baxter Transactions, the opinion or IRS private letter
ruling may not be valid. Moreover, opinions of a tax advisor are not binding on
the IRS. As a result, the conclusions expressed in the opinion of a tax advisor
could be successfully challenged by the IRS. If any of the factual
representations or assumptions in the IRS private letter ruling or tax opinion
are untrue or incomplete in any material respect, an undertaking is not
complied with, or the facts upon which the IRS private letter ruling or tax
opinion are based are materially different from the actual facts relating to
the Baxter Transactions, the opinion or IRS private letter ruling may not be
valid. Moreover, opinions of a tax advisor are not binding on the IRS. As a
result, the conclusions expressed in the opinion of a tax advisor could be
successfully challenged by the IRS.
If the Baxter Transactions are determined to be taxable, Baxter and its
stockholders could incur significant tax liabilities, and under the tax matters
agreement and the letter agreement which were assumed by Shire following the
merger, the Company may be required to indemnify Baxter for any liabilities
incurred by Baxter if the liabilities are caused by any action or inaction
undertaken by Baxalta following the separation (including as a result of the
merger).
Certain Baxalta agreements may contain change of control provisions that may
have been triggered by the merger that, if acted upon or not waived, could
cause the Company to lose the benefit of such agreement and incur liabilities
or replacement costs, which could have a material adverse effect on the Company
Prior to and following the merger, Baxalta and its affiliates are each party to
various agreements with third-parties, including certain license agreements,
business development-related agreements, production and distribution related
agreements, bonding/financing facilities, contracts for the performance of
services material to the operations of Baxalta and/or its affiliates, IT
contracts, technology licenses and employment agreements that may contain
change of control provisions that may have been triggered upon the closing of
the merger. Agreements with change of control provisions typically provide for
or permit the termination of the agreement upon the occurrence of a change of
control of one of the parties which can be waived by the relevant
counterparties. In the event that there is such a contract or arrangement
requiring a consent or waiver in relation to the merger for which such consent
or waiver was not obtained, the Company could lose the benefit of the
underlying agreement and incur liabilities or replacement costs, which could
have an adverse effect on the Company.
New regulations issued by the U.S. Department of Treasury may impact the
Company following the merger with Baxalta.
On April 4, 2016, the U.S. Department of Treasury issued new regulations
applicable to acquisitions of U.S. companies by non-U.S. companies. These
regulations, among other things, change the manner in which thresholds
contained within the so-called "anti-inversion" rules that govern how the
combined company will be taxed are calculated. These calculations are affected
by the merger and could impact any future acquisitions of U.S. companies funded
in whole or in part by Shire securities. These calculations are complicated and
depend on several factors. Moreover, the U.S. Department of Treasury also
introduced proposed "earnings stripping" regulations as revised on October 13,
2016 that may, among other things, cause certain related-party debt instruments
issued by a U.S. corporation to be treated as equity, resulting in the loss of
deductible interest payments for U.S. federal income tax purposes.
These regulations are newly issued and complex, and as such their application
to any particular set of facts is uncertain. Shire believes that the
regulations are not likely to affect the expected tax position of the Company
following the acquisition of Baxalta, which belief is based on, among other
things, facts that may change or judgments that may prove to be incorrect and,
if incorrect, could have an adverse impact on the expected tax position of the
Company.
Furthermore, the U.S. tax authorities could issue additional guidance as to the
application of these regulations or issue new regulations that could have an
adverse effect on the expected tax position of the Company.
5. Directors responsibilities statement
The following responsibility statement is repeated here solely for the purpose
of complying with DTR 6.3.5. This statement relates to and is extracted from
page 194 of the 2016 Annual Report.
These responsibilities are for the full 2016 Annual Report and not the
extracted information presented in this announcement or otherwise.
We confirm that to the best of our knowledge:
* the financial statements, prepared in accordance with United Kingdom
Generally Accepted Accounting Practice, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the company
and the undertakings included in the consolidation taken as a whole;
* the strategic report includes a fair review of the development and
performance of the business and the position of the company and the
undertakings included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties that they face; and
* the annual report and financial statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the company's performance, business model and
strategy.
This responsibility statement was approved by the Board of Directors on
February 22, 2017 and is signed on its behalf by:
Flemming Ornskov, MD, MPH
Chief Executive Officer
February 22, 2017
Jeffrey Poulton
Chief Financial Officer
February 22, 2017
END
(END) Dow Jones Newswires
March 23, 2017 08:00 ET (12:00 GMT)
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