Segment Reporting

In 2018, the Company announced a change to its internal structure to create two distinct business segments within Shire: a Rare Disease division and a Neuroscience division. The Rare Disease division focuses on treatments for rare diseases and other conditions with high unmet needs, including immunology, hematology, and genetic diseases. The Neuroscience division focuses on treatments of Attention Deficit Hyperactivity Disorder (ADHD) and certain other disorders.

The change was based on the Board's conclusion that the Neuroscience business warrants additional focus and investment and that there was a strong business rationale for creating the two divisions. As a result, the Company now reports its financial performance based on its new segments: Rare Disease and Neuroscience. This is consistent with how the financial information is viewed for the purposes of evaluating performance, allocating resources, and planning and forecasting future periods and how the operations are managed by the Executive Committee, (Shire’s chief operating decision maker). Comparative financial information for 2017 was retrospectively restated herein.

The Executive Committee evaluates segment performance for its two operating segments based on Segment contribution. There are no intersegment sales or intersegment allocations of expenses. Segment contribution for each segment represents Total revenues less Cost of sales, direct selling and marketing expenses, and direct R&D expenses.

The Company does not include the following items in Segment contribution:

• certain unallocated shared functional costs;

• general and administrative expenses;

• amortization and depreciation expense; and

• other items such as asset impairment charges, acquisition and integration costs, restructuring charges, costs related licensing arrangement, and other non-recurring or unusual charges.

The Company’s chief operating decision maker does not receive any asset information by operating segment and, accordingly, the Company does not report asset information by operating segment.

The following table presents Revenues and Segment contribution and a reconciliation to Income from continuing operations before taxes and equity in earnings of equity method investees, respectively, per the consolidated statements of income.



	Three months ended March 31,
(In millions, except %)	2018			2017
Revenues:
Rare Disease	$	2,828.3		$	2,603.3
Neuroscience	937.4			969.0
Total revenues	$	3,765.7		$	3,572.3

Segment contribution:
Rare Disease	$	1,366.6		$	1,339.7
Neuroscience	769.9			792.6
Total Segment contribution	$	2,136.5		$	2,132.3
Less: reconciling items to operating income from continuing operations
Unallocated corporate and shared functional costs, including G&A expenses	529.5			555.9
Expense related to the unwind of inventory fair value adjustments	33.5			480.4
One-time employee related costs	—			(4.0		)
Costs relating to license arrangements	10.0			—
Amortization of acquired intangible assets	484.0			364.0
Integration and acquisition costs	239.7			116.0
Reorganization costs	5.3			5.5
Gain on sale of product rights	—			(5.5		)
Depreciation	140.2			122.9
Operating income from continuing operations	694.3			497.1
Operating margin percentage	18.4		%	13.9		%
Other expense, net	(101.2		)	(134.7		)
Income from continuing operations before taxes and equity in earnings/(losses) of equity method investees	$	593.1		$	362.4

In the periods set out below, U.S. and International sales by franchise were as follows:



	Three months ended
	March 31, 2018						March 31, 2017
(In millions)	U.S. Sales		International Sales		Total Sales		U.S. Sales		International Sales		Total Sales
Product sales by franchise
IMMUNOGLOBULIN THERAPIES	$	421.6	$	136.3	$	557.9	$	405.4	$	92.9	$	498.3
HEREDITARY ANGIOEDEMA	332.4		36.4		368.8		339.7		26.4		366.1
BIO THERAPEUTICS	82.5		116.7		199.2		69.7		108.2		177.9
Immunology	836.5		289.4		1,125.9		814.8		227.5		1,042.3
HEMOPHILIA	393.1		349.7		742.8		341.5		308.9		650.4
INHIBITOR THERAPIES	60.6		149.2		209.8		70.7		149.8		220.5
Hematology	453.7		498.9		952.6		412.2		458.7		870.9
REPLAGAL	—		124.2		124.2		—		109.7		109.7
ELAPRASE	41.0		77.4		118.4		38.2		102.4		140.6
VPRIV	36.7		53.2		89.9		35.5		44.3		79.8
Genetic Diseases	77.7		254.8		332.5		73.7		256.4		330.1
GATTEX/REVESTIVE	80.3		15.9		96.2		57.0		12.0		69.0
NATPARA/NATPAR	43.2		1.8		45.0		29.6		0.1		29.7
Other Internal Medicine⁽¹⁾	0.7		37.0		37.7		0.2		33.2		33.4
Internal Medicine	124.2		54.7		178.9		86.8		45.3		132.1
Oncology	43.4		23.5		66.9		42.3		16.0		58.3
Ophthalmics	61.6		0.5		62.1		38.6		—		38.6
Total Rare Disease product sales	$	1,597.1	$	1,121.8	$	2,718.9	$	1,468.4	$	1,003.9	$	2,472.3
⁽¹⁾ Other Internal Medicine includes AGRYLIN, PLENADREN, and RESOLOR.
VYVANSE	$	557.2	$	71.6	$	628.8	$	508.5	$	55.2	$	563.7
ADDERALL XR	72.1		3.9		76.0		59.3		5.6		64.9
PENTASA	72.4		—		72.4		69.1		—		69.1
LIALDA/MEZAVANT	30.5		31.5		62.0		153.1		22.0		175.1
MYDAYIS	4.5		—		4.5		—		—		—
Other Neuroscience⁽¹⁾	21.2		53.3		74.5		26.4		40.8		67.2
Total Neuroscience product sales	$	757.9	$	160.3	$	918.2	$	816.4	$	123.6	$	940.0

⁽¹⁾ Other Neuroscience includes FOSRENOL, INTUNIV, EQUASYM, BUCCOLAM, and CARBATROL

In the periods set out below, Royalties and other revenues by segment were as follows:



	Three months ended
(In millions)	March 31, 2018		March 31, 2017
Rare Disease royalties and other revenues	$	109.4	$	131.0
Neuroscience royalties and other revenues	19.2		29.0
Royalties and other revenues	$	128.6	$	160.0