Edgar Filing: Shire plc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period ended September 30, 2007

Commission File Number: 0-29630

SHIRE PLC

(Exact name of registrant as specified in its charter)

England and Wales (State or other jurisdiction of incorporation or organization)	98-0484822 (I.R.S. Employer Identification No.)
Hampshire International Business Park, Chineham, Basingstoke, Hampshire, England, RG24 8EP (Address of principal executive offices and zip code)	+44 1256 894 000 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]

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

Yes [ ] No [X]

As at October 26, 2007, the number of outstanding ordinary shares of the Registrant was 554,996,279.

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

Statements included herein that are not historical facts are forward-looking statements. Such forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, Shire’s results could be materially affected. The risks and uncertainties include, but are not limited to, risks associated with: the inherent uncertainty of pharmaceutical research; product development including, but not limited to, the successful development of JUVISTA^® (Human TGFβ3) and GA-GCB (velaglucerase alfa); manufacturing and commercialization including, but not limited to, the launch and establishment in the market of VYVANSE™ (lisdexamfetamine dimesylate) (Attention Deficit and Hyperactivity Disorder (“ADHD”)); the impact of competitive products including, but not limited to, the impact of those on Shire’s ADHD franchise; patents including, but not limited to, legal challenges relating to Shire’s ADHD franchise; government regulation and approval including, but not limited to, the expected product approval date of INTUNIV™ (guanfacine extended release) (ADHD); Shire’s ability to secure new products for commercialization and/or development; and other risks and uncertainties detailed from time to time in Shire plc’s filings with the Securities and Exchange Commission, particularly Shire plc’s Annual Report on Form 10-K for the year ended December 31, 2006.

The following are trademarks referred to in this Form 10-Q, either owned or licensed by Shire plc or companies within the Shire Group, which are the subject of trademark registrations in certain territories.

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

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

CALCICHEW^® range (calcium carbonate with or without vitamin D₃)

CARBATROL^® (carbamazepine extended-release capsules)

DAYTRANA™(methylphenidate transdermal system)

ELAPRASE^® (idursulfase)

FOSRENOL^® (lanthanum carbonate)

GENE-ACTIVATED™

INTUNIV™ (guanfacine extended release)

LIALDA™ (mesalamine)

MEZAVANT^® (mesalazine)

REMINYL^®(galantamine hydrobromide) (UK and Republic of Ireland)

REMINYL XL™ (galantamine hydrobromide) (UK and Republic of Ireland)

REPLAGAL^® (agalsidase alfa)

SOLARAZE^® (3%, gel diclofenac sodium (3%w/w))

VANIQA^®(eflornithine hydrochloride)

VYVANSE™ (lisdexamfetamine dimesylate)

XAGRID^® (anagrelide hydrochloride)

The following are trademarks of third parties referred to in this Form 10-Q.

3TC (trademark of GlaxoSmithKline (GSK))

DYNEPO(trademark of Sanofi-Aventis)

EQUETRO (trademark of Validus Pharmaceuticals, Inc.)

JUVISTA(trademark of Renovo)

PENTASA (trademark of Ferring)

RAZADYNE (trademark of Johnson & Johnson)

RAZADYNE ER (trademark of Johnson & Johnson)

REMINYL (trademark of Johnson & Johnson, excluding UK and Republic of Ireland)

SEASONIQUE (trademark of Barr Laboratories, Inc.)

ZEFFIX (trademark of GSK)

SHIRE PLC

Form 10-Q for the three months to September 30, 2007

Table of contents

		Page
PART I FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
	Unaudited Consolidated Balance Sheets at September 30, 2007 and December 31, 2006	3
	Unaudited Consolidated Statements of Operations for the three months and nine months to September 30, 2007 and September 30, 2006	5
	Unaudited Consolidated Statement of Changes in Shareholders’ Equity for the nine months to September 30, 2007	7
	Unaudited Consolidated Statements of Comprehensive Income/(loss) for the three months and nine months to September 30, 2007 and September 30, 2006	8
	Unaudited Consolidated Statements of Cash Flows for the nine months to September 30, 2007 and September 30, 2006	9
	Notes to the Unaudited Consolidated Financial Statements	11
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		38
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		62
ITEM 4. CONTROLS AND PROCEDURES		62
PART II OTHER INFORMATION		63
ITEM 1. LEGAL PROCEEDINGS		63
ITEM 1A. RISK FACTORS		63
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		63
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		63
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		63
ITEM 5. OTHER INFORMATION		63
ITEM 6. EXHIBITS		64

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SHIRE PLC

UNAUDITED CONSOLIDATED BALANCE SHEETS

	Notes		September 30, 2007 $’M		December 31, 2006 $’M
ASSETS
Current assets:
Cash and cash equivalents				562.9		1,126.9
Restricted cash				41.8		29.8
Accounts receivable, net		4		383.1		310.8
Inventories, net		5		176.9		131.1
Assets held for sale		6		62.6		-
Deferred tax asset		7		126.7		105.7
Prepaid expenses and other current assets		8		111.7		106.0

Total current assets				1,465.7		1,810.3

Non current assets:
Investments		9		116.5		55.8
Property, plant and equipment, net				337.4		292.8
Goodwill				233.0		237.4
Other intangible assets, net		10		1,809.6		762.4
Deferred tax asset		7		98.8		155.3
Other non-current assets		11		27.7		12.4

Total assets				4,088.7		3,326.4

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses		12		684.5		566.1
Liability to dissenting shareholders		18		473.0		452.3
Other current liabilities		14		94.1		313.6

Total current liabilities				1,251.6		1,332.0

Non-current liabilities:
Capital lease obligation		15		32.7		-
Convertible bonds		16		1,100.0		-
Deferred tax liability		7		313.1		-
Other non current liabilities		17		378.9		52.1

Total liabilities				3,076.3		1,384.1

Commitments and contingencies		18

SHIRE PLC

UNAUDITED CONSOLIDATED BALANCE SHEETS (continued)

	Notes		September 30, 2007 $’M			December 31, 2006 $’M
Shareholders’ equity:
Common stock of 5p par value; 750.0 million shares authorized; and 554.9 million shares issued and outstanding (2006: 750.0 million shares authorized; and 506.7 million shares issued and outstanding)		19		48.6			43.7
Exchangeable shares: 1.2 million shares issued and outstanding (2006: 1.3 million)				55.3			59.4
Treasury stock		19		(263.3	)		(94.8	)
Additional paid-in capital				2,442.4			1,493.2
Accumulated other comprehensive income				69.7			87.8
(Accumulated deficit)/retained earnings				(1,340.3	)		353.0

Total shareholders’ equity				1,012.4			1,942.3

Total liabilities and shareholders’ equity				4,088.7			3,326.4

The accompanying notes are an integral part of these unaudited consolidated financial statements.

SHIRE PLC

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	Notes		3 months to September 30, 2007 $’M			3 months to September 30, 2006 $’M			9 months to September 30, 2007 $’M			9 months to September 30, 2006 $’M
Revenues:
Product sales				543.1			386.2			1,508.8			1,108.2
Royalties				61.9			60.4			185.4			181.8
Other revenues				3.7			2.8			17.6			9.5

Total revenues				608.7			449.4			1,711.8			1,299.5

Costs and expenses:
Cost of product sales⁽¹⁾				79.5			61.7			213.3			185.3
Research and development				180.7			104.0			363.7			304.0
Selling, general and administrative⁽¹⁾				333.0			240.5			860.9			666.5
In-process R&D charge		2		-			-			1,896.0			-
Gain on sale of product rights		3		(7.1	)		(63.0	)		(12.1	)		(63.0	)
Integration costs				-			-			1.3			3.9

Total operating expenses				586.1			343.2			3,323.1			1,096.7

Operating income/(loss)				22.6			106.2			(1,611.3	)		202.8

Interest income				8.0			12.6			42.7			36.8
Interest expense				(18.0	)		(7.0	)		(53.8	)		(19.1	)
Other (expenses)/income, net				(1.6	)		7.3			0.7			5.9

Total other (expenses)/income, net				(11.6	)		12.9			(10.4	)		23.6

Income/(loss) from continuing operations before income taxes and equity in earnings of equity method investees				11.0			119.1			(1,621.7	)		226.4
Income taxes				23.2			(33.1	)		(43.9	)		(62.9	)
Equity in earnings of equity method investees, net of taxes				0.5			1.2			1.7			5.5

Income/(loss) from continuing operations				34.7			87.2			(1,663.9	)		169.0
Gain on disposition of discontinued operations (net of income tax expense of $nil)				-			-			-			40.6

Net income/(loss)				34.7			87.2			(1,663.9	)		209.6

(1) Cost of product sales includes amortization of intangible assets relating to favorable manufacturing contracts of $0.5 million for the three and nine months to September 30, 2007 (2006: $nil) and selling, general and administrative costs includes amortization of intangible assets relating to intellectual property rights acquired of $31.1 million for the three months ended September 30, 2007 (2006: $14.6 million) and $64.0 million for the nine months ended September 30, 2007 (2006: $41.6 million).

SHIRE PLC

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (continued)

Notes

3 months to

September 30,

2007

3 months to

September 30,

2006

9 months to

September 30,

2007

9 months to

September 30,

2006

Income/(loss) from continuing operations

6.4c

17.3c

(308.8c

)

33.5c

Gain on disposition of discontinued operations

8.1c

Earnings/(loss) per ordinary share - basic

6.4c

17.3c

(308.8c

)

41.6c

Income/(loss) from continuing operations

6.3c

17.1c

(308.8c

)

33.2c

Gain on disposition of discontinued operations

8.0c

Earnings/(loss) per ordinary share - diluted

6.3c

17.1c

(308.8c

)

41.2c

Weighted average number of shares (millions):

Basic

546.4

504.0

538.9

503.6

Diluted

554.7

509.1

538.9

508.7

The accompanying notes are an integral part of these unaudited consolidated financial statements.

SHIRE PLC

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

	Common stock $’M		Common stock Number of shares M’s		Exchange- able shares $’M			Exchange- able shares Number of shares M’s			Treasury stock $’M			Additional paid-in capital $’M		Accumu- lated other compre- hensive income $’M			Retained earnings/ (accumulated deficit) $’M			Total share- holders’ equity $’M
As at January 1, 2007		43.7		506.7		59.4			1.3			(94.8	)		1,493.2		87.8			353.0			1,942.3

Net loss for the period		-		-		-			-			-			-		-			(1,663.9	)		(1,663.9	)

Foreign currency translation		-		-		-			-			-			-		(13.9	)		-			(13.9	)

Shares issued, net of issue costs		4.3		42.9		-			-			-			873.0		-			-			877.3

Exchange of exchangeable shares		-		0.3		(4.1	)		(0.1	)		-			4.1		-			-			-

Warrants exercised		0.2		0.7		-			-			-			12.8		-			-			13.0

Options exercised		0.4		4.3		-			-			-			25.2		-			-			25.6

Share based compensation		-		-		-			-			-			34.1		-			-			34.1

Shares purchased by Employee Share Option Trust (“ESOT”)		-		-		-			-			(168.5	))))		-		-			-			(168.5	))))

Dividends		-		-		-			-			-			-		-			(29.4	)		(29.4	)

Unrealized holding loss on available-for-sale securities, net of taxes		-		-		-			-			-			-		(4.2	))))		-			(4.2	))))
As at September 30, 2007		48.6		554.9		55.3			1.2			(263.3	)		2,442.4		69.7			(1,340.3	)		1,012.4

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Dividends per share

During the nine months to September 30, 2007 Shire plc declared and paid dividends of 5.2455 US cents per ordinary share (equivalent to 15.7365 US cents per American Depositary Share) and 18.6005 Canadian cents per exchangeable share totaling $29.4 million.

SHIRE PLC

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

	3 months to September 30, 2007			3 months to September 30, 2006			9 months to September 30, 2007			9 months to September 30, 2006
	$’M			$’M			$’M			$’M

Net income/(loss)		34.7			87.2			(1,663.9	)		209.6

Foreign currency translation adjustments		(5.0	)		(5.7	)		(13.9	)		26.0
Unrealized holding loss on available-for-sale securities, net of taxes		(4.4	)		(1.3	)		(4.2	)		(2.7	)
Comprehensive income/(loss)		25.3			80.2			(1,682.0	)		232.9

The components of accumulated other comprehensive income as at September 30, 2007 and December 31, 2006 are as follows:

	September 30, 2007 $’M		December 31, 2006 $’M
Foreign currency translation adjustments		66.5		80.4
Unrealized holding gain on available-for-sale securities, net of taxes		3.2		7.4
Accumulated other comprehensive income		69.7		87.8

The accompanying notes are an integral part of these unaudited consolidated financial statements.

SHIRE PLC

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	9 months to September 30, 2007 $’M			9 months to September 30, 2006 $’M
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income		(1,663.9	)		209.6
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
Depreciation and amortization:
Cost of product sales		4.4			3.5
Selling, general and administrative expenses		107.4			72.3
Share-based compensation		34.1			25.8
In-process research and development charge		1,896.0			-
Amortization of deferred financing charges		10.6			-
Write down of long-term assets		-			2.0
Gain on sale of product rights		(12.1	)		(63.0	)
Equity in earnings of equity method investees		(1.7	)		(5.5	)
Movement in deferred taxes		(35.8	)		5.0
Gain on disposition of discontinued operations		-			(40.6	)
Changes in operating assets and liabilities, net of acquisitions:
(Increase)/decrease in accounts receivable		(64.2	)		18.6
Increase in sales deduction accrual		19.3			17.6
(Increase)/decrease in inventory		(46.2	)		10.7
Decrease/(increase) in prepayments and other current assets		2.7			(10.4	)
Decrease in other assets		1.3			3.0
Increase in accounts and notes payable and other liabilities		103.8			94.9
Increase/(decrease) in deferred revenue		45.6			(6.4	)
Returns on investment from joint venture		6.8			5.8

Net cash provided by operating activities ^(A)		408.1			342.9

CASH FLOWS FROM INVESTING ACTIVITIES
Movement in short-term investments		55.8			6.9
Movement in restricted cash		(12.0	)		1.0
Purchases of subsidiary undertakings, net of cash acquired		(2,458.6	)		(0.8	)
Expenses related to the New River Pharmaceuticals, Inc. (“New River”) acquisition		(60.4	)		-
Purchases of long-term investments		(56.7	)		(9.6	)
Purchases of property, plant and equipment		(62.1	)		(71.2	)
Purchases of intangible assets		(58.2	)		(52.8	)
Proceeds from property, plant and equipment sales		-			0.9
Proceeds/deposits received from sale of product rights		24.3			63.0
Proceeds from loan repaid by ID Biomedical Corporation		-			70.6
Returns of equity investments		2.2			0.3

Net cash (used in)/provided by investing activities ^(B)		(2,625.7	)		8.3

SHIRE PLC

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

	9 months to September 30, 2007 $’M			9 months to September 30, 2006 $’M
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from drawings under bank facility		1,300.0			-
Repayment of drawings under bank facility		(1,300.0	)		-
Proceeds from issue of Shire plc 2.75% convertible bonds due 2014		1,100.0			-
Redemption of convertible bonds due 2011		-			(0.1	)
Redemption of New River 3.5% convertible notes due 2013		(279.4	)		-
Proceeds from exercise of New River purchased call option		141.8			-
Payment of debt arrangement and issuance costs		(32.8	)		-
Proceeds from exercise of options		25.6			33.3
Proceeds from issue of common stock, net of issue costs		877.3			-
Proceeds from exercise of warrants		13.0			-
Payment of dividend		(29.4	)		(22.6	)
Payments to acquire shares by ESOT		(168.5	)		(68.3	)

Net cash provided by/(used in) financing activities ^(C)		1,647.6			(57.7	)

Effect of foreign exchange rate changes on cash and cash equivalents ^(D)		6.0			5.2

Net (decrease)/increase in cash and cash equivalents ^(A+B+C+D)		(564.0	)		298.7
Cash and cash equivalents at beginning of period		1,126.9			656.5

Cash and cash equivalents at end of period		562.9			955.2

The accompanying notes are an integral part of these unaudited consolidated financial statements.

SHIRE PLC

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	Summary of Significant Accounting Policies

(a)

Basis of Presentation

These interim financial statements of Shire plc and its subsidiaries (collectively “Shire” or “the Company”), and other financial information included in this Form 10-Q, are unaudited. These interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and Securities and Exchange Commission (“SEC”) regulations for interim reporting.

The December 31, 2006 balance sheet was derived from audited financial statements but does not include all disclosures required by US GAAP. However, the Company believes that the disclosures are adequate to make the information presented not misleading.

These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year to December 31, 2006.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted from these interim financial statements. However, these interim financial statements include all adjustments, which are, in the opinion of management, necessary to fairly state the results of the interim periods. Interim results are not necessarily indicative of results to be expected for the full year.

(b)

Use of estimates in interim financial statements

The preparation of interim financial statements, in conformity with US GAAP and SEC regulations for interim reporting, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are primarily made in relation to provisions for litigation, valuation of acquired intangible assets and in-process research and development (“IPR&D”), the valuation of equity investments, sales deductions, income taxes, share-based payments and the amount payable to former holders of approximately 11.3 million shares of Transkaryotic Therapies Inc. (“TKT”) common stock who have submitted and not withdrawn written demands for appraisal of these shares in relation to the Company’s acquisition of TKT on July 27, 2005.

(c)

Convertible bonds

Convertible bonds consist of Shire plc’s $1,100 million principal amount of 2.75% convertible bonds due 2014, which are described more fully in Note 16.

In respect of each issuance of convertible bonds, the Company evaluates whether: (a) the conversion feature of such an issuance should be bifurcated from the debt host and separately accounted for as a derivative instrument in accordance with the requirements of Statement of Financial Accounting Standards (“SFAS”) No.133, “Accounting for Derivative Instruments and Hedging Activities”, (“SFAS No 133”) or (b) the conversion feature meets the criteria within SFAS No. 133 for exemption from treatment as a derivative instrument.

As the conversion feature in Shire plc’s 2.75% convertible bonds qualifies for the SFAS No.133 exemption from treatment as a derivative instrument, the convertible bonds are accounted for by the Company in accordance with Accounting Practice Bulletin 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants” (“APB 14”). In accordance with APB 14 no portion of the proceeds of Shire plc’s 2.75% convertible bonds has been allocated to the conversion feature and the convertible bonds have been recorded at their principal amount within non-current liabilities.

Based on quoted market values as at September 30, 2007 the fair value of Shire plc’s 2.75% convertible bonds was approximately $1,135 million.

(d)

Income taxes

The Company provides for income taxes in accordance with SFAS No.109, "Accounting for Income Taxes" and Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”).

Uncertain tax positions are recognized in the financial statements for positions which are considered more likely than not of being sustained based on the technical merits of the position on audit by the tax authorities. The measurement of the tax benefit recognized in the financial statements is based upon the largest amount of tax benefit that, in management’s judgement, is greater than 50% likely of being realized based on a cumulative probability assessment of the possible outcomes.

Deferred tax assets and liabilities are recognized for differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the tax bases of assets and liabilities that will result in future taxable or deductible amounts. The deferred tax assets and liabilities are measured using the enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Income tax expense is computed as the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company recognizes interest relating to unrecognized tax benefits and penalties within income taxes.

(e)

Accounting pronouncements adopted during the period

FIN 48

On January 1, 2007 the Company adopted FIN 48, which clarifies the accounting for uncertain tax positions. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure.

The provisions of FIN 48 have been applied to all tax positions on adoption of this guidance. At January 1, 2007 the Company’s liability for total unrecognized tax benefits was $234.4 million, the full amount of which would affect the effective tax rate if recognized, and the Company had accrued approximately $41.3 million for the payment of interest and penalties.

There was no cumulative effect adjustment to the opening balance of retained earnings arising as a result of the adoption of FIN 48 and with the exception of an amount of $270.7 million, which has been reclassified from current liabilities to non-current liabilities at January 1, 2007, no adjustments have been made to the other components of equity or net assets in the statement of financial position.

EITF 06-3

In September 2006, the Emerging Issues Task Force (“EITF”) reached a consensus regarding EITF 06-3, “How Sales Taxes Collected from Customers and Remitted to Governmental Authorities should be presented in the Income Statement (That Is, Gross versus Net Presentation)” (“EITF 06-03”). The scope of the issue includes any tax assessed by a governmental authority that is directly imposed on a revenue producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added, and some excise taxes. The EITF concluded that the presentation of taxes within the scope of EITF 06-3 as either gross (included within revenues and costs) or net (excluded from revenues) is an accounting policy decision that should be disclosed. In addition, for any such taxes that are reported on a gross basis, a company should disclose the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented if those amounts are significant. The disclosure of those taxes can be done on an aggregate basis. The guidance in this Issue should be applied to financial reports for interim and annual reporting periods beginning after December 15, 2006. On adoption of EITF 06-3, the Company continued to present revenues net of taxes. The adoption of EITF 06-3 did not have an impact on the Company's consolidated financial position, results of operations or cash flows or financial statement disclosure.

(f)

New accounting pronouncements to be adopted in future periods

EITF 07-3

In June 2007, the EITF reached a consensus regarding EITF 07-3, “Accounting for Non-refundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities” (“EITF 07-3”). The scope of this Issue is limited to non-refundable advance payments for goods and services to be used or rendered in future research and development activities. The EITF concluded that non-refundable advance payments for future research and development activities should be deferred and capitalized on balance sheet. Such amounts should be recognized as an expense as the related goods are delivered or the related services are performed. Entities should continue to evaluate whether they expect the goods to be delivered or services to be rendered. If an entity does not expect the goods to be delivered or services to be rendered, the capitalized advance payment should be charged to expense. The guidance in this Issue should be applied to financial reports for interim and annual reporting periods beginning after December 15, 2007. The Company is currently reviewing the impact of the adoption of EITF 07-3 on its financial statements.

SFAS No. 159

On February 15, 2007 the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. The unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings at each subsequent reporting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 and for interim periods within those fiscal years. The Company is currently reviewing the impact of the adoption of SFAS No. 159 on its financial statements.

SFAS No. 157

In September 2006 the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which provides a single definition of fair value, establishes a framework for the measurement of fair value and expands disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years; SFAS No. 157 will therefore be applicable for the Company’s fiscal year commencing January 1, 2008. The Company is currently reviewing the impact of the adoption of SFAS No. 157 on its financial statements.

2.	Business combination

On April 19, 2007 Shire completed its acquisition of New River by way of a short-form merger, in an all-cash transaction. The acquisition was effected by merging Shuttle Corporation, an indirect wholly owned subsidiary of Shire, with and into New River, with New River continuing as the surviving corporation. As consideration, Shire paid to New River’s shareholders $64 in cash for each share of New River common stock outstanding at the time of the acquisition.

The acquisition of New River allows Shire to capture the full economic value of VYVANSE, and gain control of the future development and commercialization of this product.

The pediatric indication of VYVANSE was approved by the US Food and Drug Administration (“FDA”) on February 23, 2007 and the Company received notification from the Drug Enforcement Agency (“DEA”) of the final Schedule II classification for VYVANSE on May 3, 2007.

The acquisition of New River has been accounted for using the purchase method in accordance with SFAS No. 141 “Business Combinations” (“SFAS No. 141”). Under the purchase method of accounting, the assets and liabilities of New River are recorded at their fair values at the acquisition date. The financial statements and reported results of operations of Shire issued after the completion of the acquisition reflect these fair values, with the results of New River being included within the Consolidated Statement of Operations from April 19, 2007.

Total consideration, including amounts payable in respect of stock options, share appreciation rights (“SARs”), warrants over New River’s common stock and costs directly attributable to the business combination was approximately $2.6 billion at the price of $64 per share of New River’s common stock, as analyzed below:

	$’M
Cash consideration for 37.1 million outstanding shares of New River common stock at $64 per share (net of 1.5 million of common stock repurchased through a prepaid forward purchase contract⁽¹⁾)		2,276.0

Cash cost of settling New River’s stock options and SARs		124.5

Cash cost for settling sold warrants over 4.0 million shares of New River’s common stock		133.0

Direct acquisition costs		60.4
		2,593.9

(1) New River entered into this prepaid forward purchase contract with Merrill Lynch in July 2006.

Accounting for the New River Collaboration Agreement

Prior to the acquisition of New River, on January 31, 2005 Shire entered into a collaboration agreement with New River which governed the development, manufacture and commercialization of VYVANSE for the treatment of ADHD in the US and rest of the world (“RoW”) territories. In March 2005, this collaboration agreement was split into two separate agreements, the US Collaboration Agreement and the RoW Territory Licence Agreement (together the “New River Collaboration Agreements”).

Under the terms of the New River Collaboration Agreements, the parties were required to collaborate on the development, manufacturing, marketing and sales of VYVANSE in the US. Profits from the collaboration arising in the US were to be divided according to a predetermined formula, based on the scheduling of VYVANSE by the DEA. Post-approval milestones were due under the New River Collaboration Agreements if the product received favorable scheduling (schedule III, IV or V or unscheduled) and on the achievement of certain sales milestones.

Through the New River Collaboration Agreements Shire also acquired the license in the RoW territory to develop and commercialize VYVANSE, in consideration of a low double-digit royalty.

Shire paid an initial sum of $50 million to New River in January 2005 on signing the original collaboration agreement and a further $50 million was paid by Shire to New River following acceptance of the filing of a New Drug Application (“NDA”) by the FDA in January 2006.

As Shire had a pre-existing relationship with New River, Shire has applied EITF 04-1, “Accounting for Pre-existing Relationships between the Parties to a Business Combination” (“EITF 04-1”), in accounting for the effective settlement of the New River Collaboration Agreements.

In accordance with EITF 04-1, Shire has measured the effective settlement of the New River Collaboration Agreements resulting from its pre-existing relationship with New River and has determined that, in respect of the US Collaboration Agreement, it was less favorable to the Company when compared with pricing for current market transactions for similar items. The RoW Territory License Agreement was determined to be at current market rates. The valuation of the New River Collaboration Agreements and their current market comparators has been based upon information available at the time of the acquisition and using the expectations and assumptions that have been deemed reasonable by the Company’s management.

Although the US Collaboration Agreement is deemed less favorable to the Company at the time of the acquisition when compared with pricing for current market transactions for similar items, the Company has not recorded a loss on the effective settlement of the pre-existing relationship in the Consolidated Statement of Operations, nor has the Company adjusted its purchase price for New River to reflect any such loss resulting from this effective settlement, as settlement provisions in the US Collaboration Agreement available to the Company would have enabled effective settlement of the New River Collaboration Agreements at no cost to the Company.

Purchase price allocation

Shire's cost of acquiring New River of approximately $2.6 billion has been allocated on a preliminary basis to the assets acquired and liabilities assumed according to their estimated fair values at the date of acquisition. Based on this preliminary allocation of the purchase price, an excess of the fair value of assets acquired and liabilities assumed over the cost of acquisition totaling $75 million has arisen which management, in accordance with SFAS No. 141, has allocated as a pro rata reduction of amounts that would otherwise have been ascribed to identifiable intangible assets and IPR&D, (such IPR&D being immediately charged to expense, having no alternative future use). The value of other intangible assets and IPR&D below are presented after this pro-rata allocation.

The final determination of these fair values will be completed as soon as possible but no later than one year from the acquisition date. To the extent that these preliminary estimates of the fair value of the assets acquired and the liabilities assumed need to be adjusted, Shire will do so in future periods in accordance with SFAS No.141.

The following table presents the Company’s preliminary allocation of the purchase price to the assets acquired and liabilities assumed, based on their fair values.

	$’M
ASSETS
Current assets:
Cash and cash equivalents		74.9
Short-term investments		55.8
Accounts receivable, net		0.3
Inventories		6.3
Purchased call option		141.8
Deferred tax asset		52.8
Prepaid expenses and other current assets		0.2

Total current assets		332.1

Property, plant and equipment, net		0.8
Other intangible assets, net
-Intellectual property - developed technology		1,105.7
-Favorable manufacturing contracts		9.0
-In process research and development		1,896.0

Total assets		3,343.6

LIABILITIES
Current liabilities:
Accounts payable and accrued expenses		33.3
Convertible loan notes		279.4
		312.7
Non-current liabilities:
Deferred tax liability		437.0

Total liabilities		749.7

Net assets acquired		2,593.9

In-process Research and Development

IPR&D is defined by FASB Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method”, (“FIN 4”) as being a development project that has been initiated and achieved material progress but (i) has not yet reached technological feasibility or has not yet received the appropriate regulatory approval; (ii) has no alternative future use; and (iii) the fair value is estimable with reasonable certainty.

A project-by-project valuation using the guidance in SFAS No. 141 and the American Institute of Certified Public Accountants (“AICPA”) Practice Aid “Assets Acquired in a Business Combination to Be Used In Research and Development Activities: A Focus on Software, Electronic Devices and Pharmaceutical Industries” has been performed to determine the fair values of research and development projects of New River which were in-process, but not yet completed as at the completion of the acquisition.

The IPR&D assets totaling $1,896.0 million relate to VYVANSE indicated for ADHD in non-pediatric patients in the US ($1,815.2 million) and VYVANSE indicated for ADHD in RoW, ($80.8 million). Both of these IPR&D assets had not received approval, (either from the FDA or from the relevant regulators in the RoW) at the acquisition date. The Company considers that these IPR&D assets have no alternative future use outside their current development projects, as outlined in the AICPA Practice Aid, and these assets have therefore been charged to expense in the Consolidated Statement of Operations as of the acquisition date in accordance with FIN 4.

The fair value of the VYVANSE IPR&D assets was determined through the income approach using the multi-period excess earnings method. The fair value of the acquired IPR&D assets has been based on the present value of the probability adjusted incremental cash flows expected to be generated by the research and development projects, after the deduction of contributory asset charges for other assets employed in these projects (such other assets include working capital, the assembled workforce, and the favorable manufacturing contract identified below). The valuation assumes that, consistent with EITF 04-1, the effective settlement of the pre-existing New River Collaboration Agreements has occurred and Shire has purchased 100% of the forecast future cash flows.

Estimated future cash flows have been probability adjusted to take into account the stage of completion and the risks surrounding the successful development and commercialization of the acquired projects. The estimated after tax cash flows were discounted to present value using risk adjusted discount rates between 10% and 12%.

The forecast of future cash flows required various assumptions to be made including:

revenue that is likely to result from sales of VYVANSE for non-pediatric patients in the US and sales of VYVANSE in RoW, including estimated number of units to be sold, estimated selling prices, estimated market penetration, estimated ADHD market share and year-over-year growth rates over VYVANSE’s life cycle;

cost of sales for VYVANSE using historical data from similar products, industry data or other sources of market data;

sales and marketing expenses using historical data, industry data or other market data;

general and administrative expenses;

future research and development expenses to complete the development of VYVANSE in the US and RoW; and

the tax amortization benefit which would be available to a market participant purchasing the assets piecemeal.

In addition Shire considered:

the stage of completion of VYVANSE development in the US and RoW;

the costs incurred to date;

the projected costs to complete;

the contribution, if any, of the acquired identifiable intangible assets, including the favorable manufacturing contract (see below);

the projected launch date of VYVANSE; and

the estimated life of VYVANSE.

The major risks and uncertainties associated with the timely completion of the acquired IPR&D projects consist of the ability to confirm the safety and efficacy of the technology based on the data from ongoing clinical trials and obtaining the necessary regulatory approvals. The valuations have been based on information at the time of the acquisition and expectations and assumptions that (i) have been deemed reasonable by Shire’s management, and (ii) are based on information, expectations and assumptions that would be available to and made by a market participant. However, no assurance can be given that the underlying assumptions or events associated with such assets will occur as projected. For these reasons, among others, the actual cash flows may vary from forecast future cash flows.

Identifiable intangible assets

The acquired identifiable intangible assets are attributable to the following categories:

	Fair value $’M		Asset life Years
Intellectual property – developed technology⁽¹⁾		1,105.7		20	⁽³⁾
Other (finite-lived assets)⁽²⁾		9.0		5
		1,114.7

(1)	Relates to the approved pediatric indication of VYVANSE.

(2)	Relates to a favorable manufacturing contract for VYVANSE.

(3)	The asset life of 20 years represents the period over which management believe the asset will contribute to the future cash flows of Shire, being the expected commercial lifespan of VYVANSE (VYVANSE has patent protection in the US until September 2023 and until September 2024 in Europe).

Acquired identifiable intangible assets primarily represent the value ascribed to developed technology, represented by the pediatric indication of VYVANSE in the US. These rights include the rights to develop, use, market, sell and/or offer for sale the technical processes, intellectual property and institutional understanding (including the way in which VYVANSE reacts in body, an understanding of the mechanisms of action which allow VYVANSE to work and the knowledge related to the associated clinical and marketing studies performed for VYVANSE).

The fair value of this intellectual property in respect of the pediatric indication of VYVANSE has been determined through the income approach using the multi-period excess earnings method. The valuation assumes that, consistent with EITF 04-1, the effective settlement of the pre-existing New River Collaboration Agreements has occurred and Shire has purchased 100% of the cash flows of the pediatric indication of VYVANSE in the US. Using the multi-period excess earnings method, the fair value of intellectual property in respect of the pediatric indication of VYVANSE in the US has been based on the present value of the incremental after-tax cash flows attributable to the asset, after the deduction of contributory asset charges for other assets employed (including working capital, the assembled workforce, and the favorable manufacturing contract).

The forecast of future cash flows in respect of the VYVANSE intellectual property requires various assumptions to be made, including:

revenue that is likely to result from sales of the pediatric indication of VYVANSE, including the estimated number of units to be sold, estimated selling prices, estimated ADHD market penetration, estimated ADHD market share and year-over-year growth rates over VYVANSE’s life cycle;

cost of sales for the products using historical data, industry data or other sources of market data;

sales and marketing expenses using historical data, industry data or other market data;

general and administrative expenses;

research and development expenses; and

the tax amortization benefit which would be available to a market participant purchasing the assets piecemeal.

The fair value of the favorable manufacturing contract represents the cost savings over market rates negotiated by New River under a five year contract for supply of the active pharmaceutical ingredient used in the manufacture of VYVANSE.

The valuations are based on information available at the time of the acquisition and the expectations and assumptions that (i) have been deemed reasonable by Shire’s management, and (ii) are based on information, expectations and assumptions that would be available to and made by a market participant. However, no assurance can be given that the underlying assumptions or events associated with such assets will occur as projected. For these reasons, among others, the actual cash flows may vary from forecast future cash flows.

Convertible Notes

In July 2006, New River issued $137.8 million of 3.5% Convertible Subordinated Notes due 2013 (the “Notes”). On conversion of the Notes New River was obligated to pay the principal amount of the Notes to the Note holders in cash, with any excess of the fair value over their principal amount (the “Excess Conversion Value”) being payable either in cash, shares of New River common stock or a combination of shares of New River common stock and cash at the election of New River.

On April 3, 2007 New River announced that it had elected to settle any Excess Conversion Value in cash. Following the change of control of New River as a result of the business combination, Note holders were entitled to a make-whole premium in the form of an increase in the conversion rate if they tendered their Notes for conversion prior to May 17, 2007.

In accordance with SFAS No. 141 and EITF Issue No. 98-1, “Valuation of Debt Assumed in a Purchase Business Combination”, the Notes have been valued at their fair value, being the present value of the estimated future cash flows in respect of the Notes as at the date of acquisition.

All the outstanding Notes were tendered for conversion in the period between the acquisition and May 17, 2007 and were therefore settled in cash during the second quarter of 2007 at a value of $279.4 million which equates to the fair value of the Notes at the acquisition date including the make-whole premium.

Purchased Call Option

Concurrent with the issue of the Notes, New River also entered into a purchased call option with Merrill Lynch at a cost to New River of $43.5 million, being a convertible note hedge transaction for the Excess Conversion Value of the Notes. The purchased call options covered, subject to customary anti-dilution adjustments, 4,005,811 shares of New River common stock at strike prices which correspond to the conversion price of the Notes. New River had recorded the cost of acquiring the purchased call option to additional paid in capital.

As a result of New River’s election on April 3, 2007 to settle the Excess Conversion Value in cash, Merrill Lynch were obligated to settle the purchased call option in cash. The fair value of the purchased call option represents the Excess Conversion Value of the Notes, including the make-whole premium. This fair value of $141.8 million has been recorded by the Company as an asset within the preliminary purchase price allocation.

Deferred taxes

A net current deferred tax asset of $52.8 million and a net non current deferred tax liability of $437.0 have been recognized in the preliminary purchase price allocation, as analyzed below:

	$’M
Deferred tax asset on New River net operating loss carryforwards		51.8
Other deferred tax assets - current		1.0

Net deferred tax asset - current		52.8

Deferred tax liabilities on intangible assets – non current⁽¹⁾		(433.6	)
Other deferred tax liabilities		(4.7	)

Deferred tax liability – non current		(438.3	)
Other deferred tax assets – non current		1.3

Net deferred tax liability – non current		(437.0	)

(1)

Principally relating to temporary differences arising in respect of the acquired intangible asset for developed technology (representing the pediatric indication of VYVANSE in the US) which is not deductible for tax purposes. The deferred tax liability will be credited to the income statement in line with the amortization of the intangible asset.

Deferred revenue

In accordance with the requirements of EITF Issue No. 01-3, “Accounting in a Business Combination for Deferred Revenue of an Acquiree”, deferred revenue of $3.6 million previously included within New River’s other current liabilities and $59.5 million included within other non-current liabilities relating to the New River Collaboration Agreements have been eliminated from the acquisition balance sheet through the preliminary purchase price allocation exercise, as the enlarged Shire group will have no external performance obligations in respect of this deferred revenue following the acquisition.

Restructuring costs

An estimate of restructuring costs of $3.6 million accounted for in accordance with EITF Issue No. 95-3 “Recognition of Liabilities in Connection with Purchase Business Combinations”, has been recognized as a liability assumed in the purchase business combination within Accounts payable and accrued expenses. These costs primarily relate to employee severance costs and the cost of exiting New River’s Virginia facilities. These costs are anticipated to be paid in 2007.

Supplemental Disclosure of Pro Forma Information

The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of New River had occurred at January 1, 2006. There are no pro forma adjustments required to the consolidated results of operations for the three months to September 30, 2007, and no pro forma consolidated results of operations for this period have been presented.

	Three months to September 30, 2006 $’M		Nine months to September 30, 2007 $’M		Nine months to September 30, 2006 $’M
Total revenues		449.4		1,711.8		1,299.5
Net income from continuing operations before cumulative effect of change in accounting principles		48.7		82.5		104.0
Net income from continuing operations		48.7		82.5		103.3
Net income		48.7		82.5		143.9

	Three months to September 30, 2006		Nine months to September 30, 2007		Nine months to September 30, 2006
Earnings per share – Basic
Net income from continuing operations per share		8.9		15.0		19.0
Net income per share		8.9		15.0		26.3

Earnings per share – Diluted
Net income from continuing operations per share		8.8		14.3		18.9
Net income per share		8.8		14.3		26.1

The unaudited pro forma financial information above reflects the following pro forma adjustments applied using the principles of Article 11 of Regulation S-X under the Securities Exchange Act of 1934:

(i)

an adjustment to eliminate the revenues recognized by New River of $3.0 million for the nine months to September 30, 2007 and $5.0 million and $31.8 million for the three and nine months to September 30, 2006 respectively and expenses incurred by Shire of $50.0 million for the nine months to September 30, 2006 in connection with the New River Collaboration Agreements;

(ii)

an adjustment to increase interest expense by $25.3 million for the nine months to September 30, 2007, and $17.5 million and $54.1 million for the three and nine months to September 30, 2006, to reflect the interest expense and amortization of deferred issue costs associated with the $1,300 million drawn down under the Facilities Agreement (as defined in Note 16), which was entered into by Shire on February 21, 2007 for the purpose of financing the acquisition of New River;

(iii)

an adjustment to decrease interest income by $6.5 million for the nine months to September 30, 2007 and $4.8 million and $13.7 million for the three and nine months to September 30, 2006 respectively, to reflect the interest foregone on the Company’s cash resources used to part finance the acquisition of New River;

(iv)

an adjustment to increase amortization expense based on the estimated fair value of identifiable intangible assets from the purchase price allocation, which are being amortized over their estimated useful lives over a range of 5 to 20 years, of approximately $28.6 million for the nine months to September 30, 2007 and $14.3 million and $42.8 million for the three and nine months to September 30, 2006; and

(v)

an adjustment to the weighted average number of shares used in the pro forma EPS calculation to reflect the private placement of 42.9 million new ordinary shares of Shire plc on February 20, 2007, the proceeds of which were used to partially fund the acquisition, as if the private placement took place on January 1, 2006.

The unaudited pro forma financial information above has not been adjusted for the IPR&D charge of $1,896.0 million which formed part of the preliminary purchase price allocation because it is non-recurring in nature. The unaudited pro forma financial information includes a charge of $5.0 million for the three months to September 30, 2006 and $82.8 million and $11.0 million for the nine months ended September 30, 2007 and 2006, respectively, in respect of New River cash settled SARs. Pursuant to SFAS No 123(R), “Share based payments”, the liability for the cash settled SARs was revalued to fair value at each balance sheet date; these cash settled SARs were extinguished as a result of the acquisition.

The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

3.	Gain on sale of product rights

Disposal of EQUETRO

During 2007 Shire commenced a process to dispose of certain products that are no longer core to Shire’s strategy. In September 2007 Shire sold EQUETRO to Validus Pharmaceuticals Inc. (“Validus”) for a cash consideration of $7.5 million. This resulted in a gain of $7.1 million being recorded in the three months to September 30, 2007.

Other disposals

Shire also received cash consideration of $6.7 million for divested non-core products in the first half of 2007 resulting in a gain of $5.0 million being recorded. A further $10.1 million has been received for divested non-core products, which has been recorded as a deposit within Other accrued liabilities until the relevant regulatory authorizations for the products are transferred. See Note 6 for further information.

Disposal of ADDERALL

In September 2006, Shire disposed of its ADDERALL (immediate release mixed amphetamine sales) product to Duramed Pharmaceuticals Inc, (“Duramed”) for $63.0 million in cash, resulting in a gain of $63.0 million being recorded.

All assets disposed of during 2007 and 2006 formed part of the Speciality Pharmaceuticals segment.

4.	Accounts receivable, net

Trade receivables at September 30, 2007 of $383.1 million (December 31, 2006: $310.8 million), are stated net of a provision for doubtful accounts and discounts of $9.4 million (December 31, 2006: $8.8 million).

Provision for doubtful accounts and discounts:

	2007 $’M			2006 $’M
As at January 1,		8.8			9.7
Provision charged to operations		45.2			48.6
Provision utilization		(44.6	)		(49.5	)

As at September 30,		9.4			8.8

5.	Inventories, net

	September 30, 2007 $’M		December 31, 2006 $’M
Finished goods		63.5		50.1
Work-in-process		80.8		59.2
Raw materials		32.6		21.8
		176.9		131.1

6.	Held for sale assets

During 2007 Shire commenced a process to dispose of certain products that are no longer core to Shire’s strategy.

(i) Disposal of non-core products to Laboratorios Almirall S.A.

On October 5, 2007 the Company agreed to sell a portfolio of its non-core products, including SOLARAZE and VANIQA, to Laboratorios Almirall S.A. for cash consideration of $213 million. The completion of the transaction is contingent on competition clearances and other customary consents.

During the three months to September 30, 2007 the assets to be disposed of were reclassified to assets held for sale. At September 30, 2007 the carrying value of these assets totaled $56.7 million, represented by attributed goodwill of $6.0 million, intangible assets of $40.2 million and inventory of $10.5 million. Deferred tax liabilities related to these assets totaled $1.9 million.

(ii) Other disposals

At September 30, 2007 assets held for sale also included intangible assets with a carrying value of $5.9 million in respect of other non core product licences held for sale. During the nine months to September 30, 2007 Shire received cash consideration of $10.1 million in respect of these product licenses, which is recorded as deposits within Other current liabilities. These deposits remain refundable to the purchasers until the relevant regulatory authorisations for the products are transferred (expected to occur by the end of Q1 2008), upon which an additional gain of approximately $4 million will be recorded.

All assets classified as held-for-sale form part of the Speciality Pharmaceuticals segment.

7.	Deferred tax

At September 30, 2007 net deferred tax liabilities of $87.6 million (December 31, 2006: net deferred tax asset of $261.0 million) were recognized. Shire has moved from a net deferred tax asset to a net deferred tax liability position following the recognition of a deferred tax liability of $433.6 million at acquisition in respect of intangible assets acquired with New River, and a deferred tax asset of $51.8 million relating to New River’s net operating loss carry forwards.

8.	Prepaid expenses and other current assets

	September 30, 2007 $’M		December 31, 2006 $’M
Prepaid expenses		41.1		39.0
Income tax receivable		24.5		20.7
Sales taxes receivable		13.1		16.0
Other current assets		33.0		30.3
		111.7		106.0

9.	Investments

On June 19, 2007 Shire signed a development and license agreement with Renovo Limited, an affiliate of Renovo Group plc (“Renovo”) to develop and commercialise JUVISTA, Renovo’s novel drug candidate in late Phase 2 development, outside the EU. In accordance with this agreement, on August 20, 2007 Shire made an equity investment of $50.0 million for 12.4 million ordinary shares in Renovo, which represented 6.5% of the total outstanding shares in Renovo immediately after the issue. The Company has accounted for this investment as an available for sale security in accordance with SFAS No. 115 “Accounting for certain investments in debt and equity securities”. For further information on the development and license agreement, see Note 18.

10.

Other intangible assets, net

	September 30, 2007 $’M			December 31, 2006 $’M
Intellectual property rights acquired		2,205.1			1,069.3
Favorable manufacturing contracts		9.0			-
		2,214.1			1,069.3
Less: Accumulated amortization		(404.5	)		(306.9	)
		1,809.6			762.4

During the nine months to September 30, 2007 the Company acquired intangible assets totalling $1,147.9 million. This includes $1,105.7 million for the pediatric indication of VYVANSE (acquired with the New River business combination) and $25.0 million for DAYTRANA as a result of a sales milestone being triggered in June 2007. Intangible asset acquisitions exclude $1,896.0 million of IPR&D acquired with New River, which was immediately charged to the income statement on completion of the business combination.

The weighted average amortization period of the acquired intangible assets is approximately 20 years.

The useful economic lives of all intangible assets that continue to be amortized under SFAS No. 142, “Goodwill and Other Intangible Assets” have been assessed. Management estimates that the annual amortization charges in respect of intangible assets held at September 30, 2007 will be approximately $125 million for each of the five years to September 30, 2012. Estimated amortization expense can be affected by various factors including future acquisitions, disposals of product rights, foreign exchange movements and the technological advancement and regulatory approval of competitor products.

11.

Other non-current assets

	September 30, 2007 $’M		December 31, 2006 $’M
Supplemental Executive Retirement Plan investment		6.9		7.0
Deferred financing costs (See Note 16)		17.5		-
Other assets		3.3		5.4
		27.7		12.4

12.

Accounts payable and accrued expenses

	September 30, 2007 $’M		December 31, 2006 $’M
Trade accounts payable		57.2		54.5
Accrued rebates – Medicaid		107.7		94.7
Accrued rebates – Managed care		37.9		31.7
Sales return reserve		36.1		36.5
Accrued coupons		12.9		13.0
Accrued bonuses		45.9		47.5
Accrued employee compensation and benefits payable		31.9		29.7
Research and development accruals		21.9		52.9
Marketing accruals		35.1		32.1
Deferred revenue		54.7		7.1
Accrued settlement costs		49.2		22.0
Other accrued expenses		194.0		144.4
		684.5		566.1

Deferred revenue includes $43.8 million in relation to product launch shipments of VYVANSE and LIALDA, net of sales deductions of $7.5 million.

13.

Income tax

The Company files income tax returns in the UK, the US (both federal and state) and various other jurisdictions. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years before 1999. Tax authorities in various jurisdictions are in the process of auditing the Company’s tax returns for fiscal periods from 1999; these tax audits cover a range of issues, including transfer pricing, potential restrictions on the utilization of net operating losses, potential taxation of overseas dividends and controlled foreign companies rules. During the course of these tax audits, the tax authorities have proposed adjustments to certain tax positions previously filed by the Company.

As at September 30, 2007 the Company’s liability for total unrecognized tax benefits was $297.4 million, and the Company has accrued a further $63.9 million for the payment of interest and penalties. In the nine months to September 30, 2007, the liability for unrecognized tax benefit increased by $63.0 million, of which $35.4 million is due to foreign currency translations adjustments which have been recognized within Other Comprehensive Income. The remaining increase of $27.6 million is due to uncertain tax positions recognized in relation to potential transfer pricing adjustments, the deductibility of expenses and availability of certain tax reliefs.

The Company considers it reasonably possible that the total amount of unrecognized tax benefits recorded at September 30, 2007 could decrease by approximately $50 million in the next twelve months, due to the expiration of the applicable statute of limitations for certain years currently under review, and the conclusion of a number of tax audits. However, while tax audits remain open, the Company also considers it reasonably possible that new issues may be raised by tax authorities resulting in increases to the balance of unrecognised tax benefits, however an estimate of such an increase cannot be made.

The Company continues to recognize interest relating to unrecognized tax benefits and penalties within income taxes. During the nine months ended September 30, 2007, the Company accrued interest and penalties of $14.9 million relating to unrecognized tax benefits within income taxes.

14.

Other current liabilities

	September 30, 2007 $’M		December 31, 2006 $’M
Income taxes payable		74.1		294.5
Sales tax payable		4.9		4.8
Other accrued liabilities		15.1		14.3
		94.1		313.6

On adoption of FIN 48 an amount of $270.7 million was reclassified from current liabilities to non-current liabilities on January 1, 2007. See Note 1(e) for further details.

15.

Capital leases

On August 17, 2007 Shire entered into a multi-year lease on laboratory and office space in Lexington, Massachusetts for its Human Genetic Therapies (“HGT”) business unit. The lease expires in 2023 although Shire has the option to extend the term of the lease for additional periods up to a total of 15 years.

Pursuant to the requirements of EITF 97-10, “The Effect of Lessee Involvement in Asset Construction”, as the Company is in substance the owner of the property during the construction phase, the related asset and financing have been recorded on the balance sheet as a capital lease. The fair value of the building element of the lease has been included in the balance sheet in Assets under construction ($32.7 million) at September 30, 2007. In accordance with SFAS No. 13, “Accounting for Leases”, the land element of the lease has been accounted for as an operating lease.

The future minimum lease payments and the capital lease obligation under the capital leases as of September 30, 2007, are as follows:

	$’M
2008		1.9
2009		2.7
2010		2.7
2011		2.7
2012		2.7
Thereafter		34.1

Total minimum lease payments		46.8
Less: Amount representing interest		(14.1	)

Capital lease obligation		32.7

Concurrent with entering into the lease, Shire also entered into an Option Agreement, which provides Shire, inter alia, with the option to purchase or lease additional manufacturing, laboratory and office space in Lexington, Massachusetts.

16.

Long-term debt

Shire 2.75% Convertible Bonds due 2014

On May 9, 2007 Shire plc issued $1,100 million in principal amount of 2.75% convertible bonds due 2014 and convertible into fully paid ordinary shares of Shire plc of par value £0.05 each (the “Bonds”). The net proceeds of issuing the Bonds, after deducting the commissions and other direct costs of issue, totaled $1,081.7 million.

The Bonds were issued at 100% of their principal amount, and unless previously purchased and cancelled, redeemed or converted, will be redeemed on May 9, 2014 (the “Final Maturity Date”) at their principal amount. The Bonds bear interest at 2.75% per annum, payable semi-annually in arrears on November 9 and May 9, commencing on November 9, 2007. The Bonds constitute direct, unconditional, unsubordinated and unsecured obligations of the Company, and rank pari passu and rateably, without any preference amongst themselves, and equally with all other existing and future unsecured and unsubordinated obligations of the Company.

The Bonds may be redeemed at the option of the Company, (the “Call Option”), at their principal amount together with accrued and unpaid interest if: (i) at any time after May 23, 2012 if on no less than 20 dealing days in any period of 30 consecutive dealing days the value of Shire plc’s ordinary shares underlying each Bond in the principal amount of $100,000 would exceed $130,000; or (ii) at any time conversion rights shall have been exercised, and/or purchases and corresponding cancellations, and/or redemptions effected in respect of 85% or more in principal amount of Bonds originally issued. The Bonds may also be redeemed at the option of the Bond holder at their principal amount including accrued but unpaid interest on May 9, 2012 (the “Put Option”), or following the occurrence of change of control. The Bonds are repayable in US dollars, but also contain provisions entitling the Company to settle redemption amounts in Pounds sterling, or in the case of the Final Maturity Date and following exercise of the Put Option, by delivery of the underlying Shire plc ordinary shares and a cash top-up amount.

The Bonds are convertible into Shire plc ordinary shares during the conversion period, being the period from June 18, 2007 until the earlier of: (i) the close of business on the date falling fourteen days prior to the Final Maturity Date; (ii) if the Bonds have been called for redemption by the Company, the close of business fourteen days before the date fixed for redemption; (iii) the close of business on the day prior to a Bond holder giving notice of redemption in accordance with the conditions; and (iv) the giving of notice by the trustee that the Bonds are accelerated by reason of the occurrence of an event of default.

Upon conversion, the Bond holder is entitled to receive Shire plc ordinary shares at the initial conversion price of $33.5879 per Shire plc ordinary share, (subject to adjustment as outlined below), being 2,977.26265 shares per $100,000 denomination. The initial conversion price is subject to adjustment in respect of (i) any dividend or distribution by the Company, (ii) a change of control and (iii) customary anti-dilution adjustments for, inter alia, share consolidations, share splits, spin-off events, rights issues, bonus issues and reorganizations. The Shares issued on conversion will be delivered credited as fully paid, and will rank pari passu in all respects with all fully paid Shares in issue on the relevant conversion date.

Direct costs of issue of the Bonds paid in the nine months to September 30, 2007 totaled $18.3 million. These costs are being amortized to interest expense using the effective interest method over the five year period to the Put Option date. At September 30, 2007 $17.4 million was deferred ($4.1 million within other current assets and $13.3 million within other non-current assets).

Multicurrency Term and Revolving Facilities Agreement

In connection with the acquisition of New River, Shire plc entered into a Multicurrency Term and Revolving Facilities Agreement (the “Facilities Agreement”) with ABN AMRO Bank N.V., Barclays Capital, Citigroup Global Markets Limited and The Royal Bank of Scotland plc (the “Arrangers”) on February 20, 2007. The Facilities Agreement comprised three credit facilities: (i) a committed multicurrency five year term loan facility in an aggregate amount of $1,000 million (“Term Loan A”), (ii) a committed multicurrency 364 day term (with a further 364 day extension option) loan facility in an aggregate amount of $300 million (“Term Loan B”) and (iii) a committed five year revolving loan facility in an aggregate amount of $1,000 million (the “RCF” and, together with Term Loan A and Term Loan B, the “Facilities”). Shire plc has agreed to act as guarantor for any of its subsidiaries that borrow under the Facilities Agreement.

On April 18, 2007 the Company fully utilized Term Loan A of $1,000 million and Term Loan B of $300 million to partially fund the acquisition of New River. In May 2007 Shire issued $1,100 million principal amount of the Bonds. The proceeds of the issue were used to repay and cancel $800 million of Term Loan A and all of Term Loan B in accordance with the terms of the Facilities Agreement. The remaining $200 million drawn down under Term Loan A was repaid on June 29, 2007. The RCF has not been utilized.

On July 19, 2007, the Company entered into a syndication and amendment agreement in relation to the Facilities Agreement (the “Amended Facilities Agreement”), which increased the RCF to an aggregate amount of $1,200 million, amended the covenant relating to the ratio of Net Debt to EBITDA and syndicated the RCF.

The RCF, which includes a $250 million swingline facility, may be used for general corporate purposes and matures on February 20, 2012. The availability of loans under the RCF is subject to customary conditions, including the absence of any defaults thereunder and the accuracy (in all material respects) of Shire’s representations and warranties contained therein.

The interest rate on each loan drawn under the RCF for each interest period, as determined by the Company, is the percentage rate per annum which is the aggregate of the applicable margin (initially set at 0.80 per cent per annum until delivery of the compliance certificate for the year ending December 31, 2007 and thereafter ranging from 0.40 to 0.80 per cent per annum, depending on the ratio of Net Debt to EBITDA) and LIBOR for the applicable interest period. Shire shall also pay a commitment fee on undrawn amounts at 35 per cent per annum of the applicable margin.

The Amended Facilities Agreement includes requirements that (i) Shire’s ratio of Net Debt to EBITDA (as defined in the Amended Facilities Agreement) does not exceed 3.5 to 1 for both the 12 month period ending December 31 and June 30 unless Shire has exercised its option (which is subject to certain conditions) to increase it to 4.0 to 1 for two consecutive testing dates; and (ii) that the ratio of EBITDA to Net Interest (as defined in the Facilities Agreement) must not be less than 4.0 to 1, for both the 12 month period ending December 31 and June 30, and (iii) additional limitations on the creation of liens, disposal of assets, incurrence of indebtedness, making of loans, giving of guarantees and granting security over assets.

Upon a change of control of Shire or upon the occurrence of an event of default and the expiration of any applicable cure period, the total commitments under the Facilities may be canceled and/or all or part of the loans, (together with accrued interest and all other amounts accrued or outstanding) may become immediately due and payable. Events of default under the Amended Facilities Agreement include: (i) non-payment of any amounts due under the Facilities; (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 the group; (vii) certain US Employee Retirement Income Security Act breaches which would have a material adverse effect; (viii) if it becomes illegal for Shire or any of its subsidiaries that are parties to the Amended Facility Agreement to perform their obligations or (ix) if Shire or any subsidiary of Shire which is party to the Amended Facility Agreement repudiates the Amended Facility Agreement or any Finance Document (as defined in the Amended Facility Agreement).

During the nine months ended September 30, 2007 the Company paid $14.5 million for the arrangement of the Facilities of which $9.0 million has been amortized in the nine months to September 30, 2007 (including $7.9 million written off following repayment of Term Loan A and Term Loan B). The remaining arrangement costs of $5.5 million, which relate to the RCF, have been deferred and are being amortized over the estimated term of the facility ($1.3 million within other current assets and $4.2 million within other non-current assets).

New River 3.5% Convertible Subordinated Notes due 2013

During July 2006, New River issued $137.8 million of 3.5% Convertible Subordinated Notes due 2013 (the “Notes”). Prior to the acquisition of New River during April 2007, the Notes were convertible according to their terms following the New River share price having exceeded predetermined levels. Following Shire’s acquisition of New River, the Notes also became convertible as a result of the change of control of New River, entitling Note holders to a make-whole premium in the form of an increase in the conversion rate if the Notes were tendered for conversion prior to May 17, 2007.

All of the outstanding Notes were tendered for conversion in the period between the acquisition and May 17, 2007 and were settled at their fair value of $279.4 million.

17.

Other non-current liabilities

	September 30, 2007 $’M		December 31, 2006 $’M
Income taxes payable		322.6		-
Other accrued liabilities		56.3		52.1
		378.9		52.1

On adoption of FIN 48 an amount of $270.7 million was reclassified from current liabilities to non-current liabilities on January 1, 2007. See Note 1(e) for further details.

18.

Commitments and contingencies

(a)

Operating leases

Future minimum lease payments presented below include operating lease payments and other fixed executory fees under operating lease arrangements as at September 30, 2007:

	Operating leases $’M
2007		8.5
2008		35.2
2009		31.3
2010		29.6
2011		26.2
2012		13.8
Thereafter		71.9
		216.5

(i)

Operating leases

The Company leases land, facilities, motor vehicles and certain equipment under operating leases expiring through 2025. Lease and rental expense amounted to $19.6 million for the nine months to September 30, 2007 (2006: $17.8 million), which is predominately included in selling, general and administrative expenses in the accompanying statements of operations.

(ii)

Restricted cash in respect of leases

As at September 30, 2007 the Company had $6.6 million of restricted cash held as collateral for certain equipment leases (December 31, 2006: $6.7 million).

(b)

Letters of credit and guarantees

As at September 30, 2007, the Company had the following letters of cred