10-Q

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)

1

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

2

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

3

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.

4

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).

5

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	20		546.4		504.0		538.9			503.6
Diluted	20		554.7		509.1		538.9			508.7

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

6

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.

7

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.

8

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

9

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.

10

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.

11

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.

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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.

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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.

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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.

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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.

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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.

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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.

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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;

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(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

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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

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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

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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.

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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.

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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.

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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.

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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 credit:

(i)        an irrevocable standby letter of credit with Barclays Bank plc, in the amount of $14.2 million, providing security on the recoverability of insurance claims.  The Company has restricted cash of $14.2 million, as required by this letter of credit; and

(ii)       an irrevocable standby letter of credit with Bank of America in the amount of $7.9 million, providing security on the payment of lease obligations.  The Company has restricted cash of $7.9 million, as required by this letter of credit.

(c) Commitments

(i) JUVISTA

On June 19, 2007 Shire signed an agreement with Renovo to develop and commercialize JUVISTA, Renovo’s novel drug candidate in late Phase 2 development.  JUVISTA is being studied for the prevention and reduction of scarring in connection with both cosmetic and therapeutic surgery. Under the terms of the agreement Shire has the exclusive right to commercialize JUVISTA worldwide, with the exception of EU member states.

Following the expiration of the Hart Scott-Rodino (“HSR”) waiting period on August 10, 2007, Shire paid Renovo $75 million (expensed as R&D during the nine months to September 30, 2007) and made an equity investment in Renovo of $50 million (at a subscription price of £2 per share, representing 6.5% of Renovo’s share capital immediately after the issue).  In addition, Shire will pay Renovo $25 million on the filing of JUVISTA with the FDA; up to $150 million on FDA approval; royalties on net sales of JUVISTA; and up to $525 million on the achievement of very significant sales targets.

Shire will bear the cost of clinical trials designed specifically for obtaining US regulatory approval.  Renovo will bear the costs of clinical trials designed specifically for obtaining EU regulatory approval.  Shire and Renovo will share equally the costs of conducting global clinical trials that are designed for obtaining both US and EU regulatory approvals.

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(ii) DAYTRANA

In connection with the Company’s acquisition in 2003 from Noven Pharmaceuticals, Inc. (“Noven”) of the worldwide sales and marketing rights to DAYTRANA, Shire paid $50 million to Noven in the nine months to September 30, 2007 million as a result of reaching sales milestones, of which $25 million was accrued at December 31, 2006.  These amounts have been capitalized within other intangible assets and will be amortized over approximately 10 years.  Shire has a further obligation to pay Noven $25 million, contingent on future sales performance.

(iii) Women’s Health Products

In September 2006, Shire and Duramed entered into an agreement related to SEASONIQUE, a number of products using Duramed’s transvaginal ring technology and other oral products.  Shire has the right to market these products in a number of markets outside of North America, including the larger European markets.

Under this agreement, Shire will reimburse Duramed for US development expenses incurred going forward up to a maximum of $140 million over eight years from September 2006.  US development expenditure reimbursement for the nine months ended September 30, 2007 totaled $11.9 million.  At September 30, 2007 the maximum future reimbursement for Duramed incurred US development expenditure was $125.6 million.  Shire is separately responsible for development costs in its licensed territories.

(iv) Tissue Protective Cytokine (“TPC”) development rights

In connection with the Company’s licence of TPC rights in non-nervous system indications from Warren Pharmaceuticals, Inc (“Warren”), the Company is committed to making payments on achievement of certain milestones.  The Company is not required to make any payments to Warren upon regulatory approval of the first product for the first indication.  However, it is obligated to make milestone payments to Warren of $25 million upon regulatory approval in each of up to five subsequent major indications. 

(v) Other R&D and sales milestones

In addition to the commitments set out in (i) to (iv), at September 30, 2007 the Company had commitments payable on achievement of specified milestones and fees payable for products under development in-licensed from third parties of $73.3 million (December 31, 2006: $75.6 million), of which $1.5 million could be paid in the remainder of 2007.

(vi) Clinical testing

At September 30, 2007 the Company had committed to pay approximately $58.3 million (December 31, 2006: $55.0 million) to contract vendors for administering and executing clinical trials.  The Company expects to pay $19.6 million (December 31, 2006: $36.1 million) of these commitments in 2007. However, the timing of these payments is dependent upon actual services performed by the organizations as determined by patient enrollment levels and related activities.

(vii) Contract manufacturing

At September 30, 2007 the Company had committed to pay approximately $80.6 million (December 31, 2006: $83.4 million) in respect of contract manufacturing. The Company expects to pay $29.3 million (December 31, 2006: $64.5 million) of these commitments in 2007.

(viii) Investment commitments

At September 30, 2007 the Company had outstanding commitments to subscribe for interests in companies and partnerships for amounts totaling $13.1 million (December 31, 2006: $15.9 million) which may all be payable in the remainder of 2007, depending on the timing of capital calls.

(ix) Capital commitments

At September 30, 2007, the Company has committed to spend $32.0 million in 2007 in respect of capital projects, including commitments for the expansion and improvements to office space at the US headquarters at Wayne, Pennsylvania and improvements to laboratory and office space leased by the HGT business at Lexington, Massachusetts.

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(d) Legal proceedings

General

The Company accounts for litigation losses and insurance claims and provisions in accordance with SFAS No. 5, "Accounting for Contingencies" (“SFAS No. 5”).  Under SFAS No. 5, loss contingency provisions are recorded for probable losses when management is able to reasonably estimate the loss.  Where the estimated loss lies within a range and no particular amount within that range is a better estimate than any other amount, the minimum amount is recorded.  In other cases management's best estimate of the loss is recorded.  These estimates are developed substantially before the ultimate loss is known and the estimates are refined in each accounting period in light of additional information becoming known.  In instances where the Company is unable to develop a reasonable estimate of loss, no litigation loss is recorded at that time.  As information becomes known a loss provision is set up when a reasonable estimate can be made.  The estimates are reviewed quarterly and the estimates are changed when expectations are revised.  There is no assurance that the Group will be successful in any of these proceedings and any outcome upon settlement that deviates from the Company’s estimate may result in an additional expense in a future accounting period, which may have a material impact on the Group’s results and financial position.  At September 30, 2007 provisions for litigation losses, insurance claims and other disputes totaled $67.5 million (December 31, 2006: $35.7 million) excluding the liability to dissenting shareholders.

Specific

ADDERALL XR

(i) Colony and Actavis

In December 2004, Shire was notified that Colony Pharmaceuticals, Inc. (“Colony”) had submitted an Abbreviated New Drug Application (“ANDA”) under the Hatch-Waxman Act seeking permission to market its generic versions of the 5mg, 10mg, 15mg, 20mg, 25mg and 30mg strengths of ADDERALL XR prior to the expiration date of US Patent No. 6,322,819 (“the ‘819 Patent”) and US Patent No. 6,605,300 (“the ‘300 Patent”), the Shire patents that cover ADDERALL XR.  Colony is a member of the Actavis Group hf group of companies.  On March 20, 2007, Shire filed a lawsuit in the U.S. District Court for the District of Maryland against Colony, Actavis, Inc. and Actavis Group hf (collectively “Colony and Actavis”) for infringement of the ‘819 Patent, the ‘300 Patent and also US Patent No. 6,913,768.  The lawsuit alleges that all of Colony and Actavis’ generic strengths infringe the three patents in suit.  In response, Colony and Actavis have alleged as affirmative defenses and counterclaims noninfringement, invalidity and unenforceability of the three patents.  Because the case was not filed pursuant to the Hatch-Waxman Act, there is no 30-month stay of approval of Colony and Actavis’ ANDA products associated with this litigation.

On August 2, 2007, Colony filed a motion for partial summary judgement of non-infringement of the ‘819 and ‘300 Patents.  Following a conference with the Court regarding a briefing schedule, the Court ordered a focused discovery period on the motion issues expiring on September 19, 2007.  Shire’s opposition and Rule 56(f) affidavit were filed on October 3, 2007.  Colony filed their reply on October 15, 2007.  No summary judgement hearing date has been set, and no trial date has been set.

(ii) Teva Pharmaceuticals

In February 2005, Shire was notified that Teva Pharmaceuticals, Inc. (“Teva Pharmaceuticals”) had submitted an ANDA under the Hatch-Waxman Act seeking permission to market its generic versions of the 10mg and 30mg strengths of ADDERALL XR prior to the expiration date of the Company’s ‘819 and ‘300 Patents.  In June 2005, Shire was notified that Teva Pharmaceuticals had amended its ANDA to seek permission to market additional strengths of 5mg, 15mg and 20mg of its generic ADDERALL XR prior to the expiration of the '819 and '300 Patents.  In January 2006, Shire received a third notice letter that Teva Pharmaceuticals had further amended its ANDA to seek permission to market the 25mg strength generic version of ADDERALL XR prior to the expiration of the ‘819 and ‘300 Patents. On March 2, 2006 Shire filed a lawsuit in the Eastern District of Pennsylvania against Teva Pharmaceuticals USA, Inc. (“Teva USA”) and Teva Pharmaceuticals Industries Ltd. (collectively “Teva”) alleging that all of Teva’s ANDA products infringe both the ‘819 and the ‘300 Patents.  The lawsuit triggered a stay of FDA approval of Teva’s 25mg strength product for 30 months from the date of the Company’s receipt of Teva’s third notice letter.  There is no such stay with respect to Teva’s 5mg, 10mg, 15mg, 20mg and 30mg strengths versions of ADDERALL XR.  On January 30, 2007, the case was transferred to the civil suspense docket with an Order requiring the parties to notify the Court of the status of the case on the first business day of every month.  The case remains on the civil suspense docket.  No trial date has been set.

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(iii) Andrx and Watson

In September 2006, Shire was notified that Andrx Pharmaceuticals, LLC (“Andrx”) had submitted an ANDA under the Hatch-Waxman Act seeking permission to market its generic versions of the 5mg, 10mg, 15mg, 20mg, 25mg and 30mg strengths of ADDERALL XR prior to the expiration date of the Company’s ‘819 and ‘300 Patents. Shire Laboratories and Shire LLC filed lawsuits in the US District Court for the District of New Jersey and the Southern District of Florida against Andrx and Andrx Corporation for infringement of the Company’s ‘819 and ‘300 Patents.  Watson Pharmaceuticals, Inc., the recent acquiror of Andrx, was also named as a defendant in the lawsuits.  The lawsuits allege that all of Andrx’s ANDA products infringe the patents in suit.  Pursuant to the Hatch-Waxman Act, there will be a 30-month stay with respect to Andrx’s ANDA products.  In March 2007, Shire dismissed the Florida lawsuit without prejudice. Thereafter in July 2007, the US District Court for the District of New Jersey ordered the pending action in New Jersey transferred to Southern District of Florida.  No trial date has been set.

(iv) Sandoz

In December 2006, Shire was notified that Sandoz Inc. (“Sandoz”) had submitted an ANDA under the Hatch-Waxman Act seeking permission to market its generic versions of the 5mg, 10mg, 15mg, 20mg, 25mg, 30mg strengths of ADDERALL XR prior to the expiration of the Company’s ‘819 and ‘300 Patents.  On January 26, 2007 Shire filed suit in the US District Court for the District of Colorado for infringement of the ‘819 and ‘300 Patents. Pursuant to the Hatch Waxman Act, there will be a 30 month stay with respect to Sandoz’ proposed generic products.  In response to Shire’s complaint, Sandoz has alleged affirmative defenses and counterclaims of non infringement and invalidity.  Sandoz has also alleged sham litigation and patent misuse, and the Company has filed a motion to strike these two affirmative defenses.  The Court has denied the motion without prejudice.  Discovery is ongoing and affirmative expert reports were filed on September 21, 2007 and rebuttal reports were filed on October 12, 2007.  No trial date has been set.

CARBATROL

(i) Nostrum

In August 2003, the Company was notified that Nostrum Pharmaceuticals, Inc. (“Nostrum”) had submitted an ANDA under the Hatch-Waxman Act seeking permission to market its generic version of the 300mg strength of CARBATROL (Nostrum’s ANDA product) prior to the expiration date of the Company’s US patents for CARBATROL, US patent No. 5,912,013 (the “‘013 Patent”) and US patent No. 5,326,570 (the “‘570 Patent”).  The notification alleges that the ‘013 and ‘570 Patents are not infringed by Nostrum’s ANDA product.  On September 18, 2003, Shire filed suit against Nostrum in the United States District Court for the District of New Jersey alleging infringement of these two patents by Nostrum’s ANDA and ANDA product. The lawsuit triggered a stay of FDA approval of up to 30 months from Shire’s receipt of Nostrum’s notice letter.  The 30 month stay expired on February 6, 2006.  Nostrum could be in a position to market its 300mg extended-release carbamazepine product upon FDA final approval of its ANDA.   On January 23, 2004 the Company amended the complaint to drop the allegations with respect to the ‘013 Patent while maintaining the suit with respect to the ‘570 Patent.  On July 17, 2006 the Court entered an order staying discovery in this case until and through September 15, 2006.  The parties requested, and the Court granted, an extension of the stay of discovery until and through December 29, 2006.  The stay of discovery has been extended and the parties are to submit on October 31, 2007 a joint letter to the Court regarding the stay and how to proceed with the case.  No trial date has been set.

(ii) Corepharma

On March 30, 2006 the Company was notified that Corepharma LLC (“Corepharma”) had filed an ANDA under the Hatch-Waxman Act seeking permission to market its generic version of carbamazepine extended release products in 100mg, 200mg and 300mg strengths prior to the expiration date of the ‘013 and the ‘570 Patents.  On May 17, 2006 Shire filed suit against Corepharma in the United States District Court for the District of New Jersey alleging infringement of these two patents by Corepharma’s ANDA and ANDA products.  Pursuant to the Hatch Waxman Act, there will be a 30 month stay with respect to Corepharma’s proposed generic products.  On September 1, 2006 the Company amended the complaint to drop the allegations with respect to the ‘013 Patent while maintaining the suit with respect to the ‘570 Patent.  On May 4, 2007 Corepharma filed a motion for summary judgement of non infringement of the ‘570 Patent.  Shire’s opposition to that motion was filed on July 30, 2007.  The Court informed the parties on August 30, 2007 that Corepharma’s motion was denied without prejudice.  The Court set a Markman schedule and opening briefs were exchanged on October 3, 2007 (including an amicus brief, filed with the Court’s permission by Nostrum).  Responding briefs were exchanged on October 24, 2007.  The Court has also set a discovery schedule with a pre-trial conference scheduled on May 6, 2008.  No trial date has been set.

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(iii) Teva

On March 20, 2007 the Company was notified that Teva USA had filed an ANDA under the Hatch-Waxman Act seeking permission to market its generic version of carbamazepine extended release products in 100mg, 200mg and 300mg strengths prior to the expiration date of the ‘013 and the ‘570 Patents. On May 2, 2007, Shire filed suit against Teva in the US District Court for the Southern District of New York alleging infringement of the ‘013 and the ‘570 Patents by Teva’s ANDA and ANDA products.  On August 23, 2007 Shire amended the complaint to drop the allegations with respect to the ‘013 Patent while maintaining the suit with respect to the ‘570 Patent.  Teva USA raised counterclaims that the ‘570 and ‘013 Patents were not infringed.  Shire has offered Teva USA a covenant not to sue with respect to the ‘013 Patent.  The Court held a status conference on October 16, 2007.  Teva represented to the Court that it would withdraw its counterclaim directed to the ‘013 patent.  Shire’s reply to the ‘570 counterclaim was issued on October 23, 2007.  The parties are to agree on a discovery schedule. No trial date has been set.

GENE ACTIVATION

In 1996 Applied Research Systems Holding N.V., a wholly-owned subsidiary of Serono S.A. (“Serono”), now refered to as Merck Serono, and Cell Genesys became involved in a patent interference involving Serono’s US Patent No. 5,272,071 (the “’071 Patent”), which purportedly covers certain methods of gene activation.  In June 2004, the Board of Patent Appeals and Interferences of the US Patent and Trademark Office (“PTO”) held that both Serono and Cell Genesys were entitled to certain claims in their respective patent and patent application, and Serono and Cell Genesys each appealed the decision of the interference to the US District Court of Massachusetts and the US District Court of the District of Columbia, respectively.  Shire Human Genetic Therapies Inc. (“Shire HGT” formerly TKT) was not a party to this interference. The District of Columbia action was subsequently transferred and consolidated with the District of Massachusetts action (the “Appeal”).

In August 2004, Serono served Shire HGT with an amended complaint in the Appeal.  The amended complaint alleges that Shire HGT infringes Serono’s ‘071 Patent.  In August 2005, the US District Court of Massachusetts severed and stayed the infringement action pending resolution of the interference claim of the Appeal at the District Court level.

Pre-trial proceedings concerning the Appeal between Serono and Cell Genesys are ongoing and Serono’s infringement action against the Company remains stayed pending resolution of those proceedings. In view of the stay, the Company has not yet answered Serono’s complaint.

DYNEPO

Since 1997, Shire HGT and Sanofi-Aventis have been involved in ongoing patent litigation regarding Amgen’s allegations that DYNEPO infringes claims of five of Amgen’s patents.  In 2001, the United States District Court of Massachusetts concluded that DYNEPO infringed certain claims of the patents that Amgen had asserted.  This decision was appealed to the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”) which affirmed in part, reversed in part, and remanded the action to the United States District Court of Massachusetts for further proceedings.

In 2004, the United States District Court of Massachusetts issued a decision on the remanded issues, finding that certain claims related to four of the patents asserted by Amgen are infringed by Shire HGT and Sanofi-Aventis.  This decision was subsequently appealed to the Federal Circuit which affirmed in part, reversed in part, and once again remanded certain issues to the District Court.  Amgen filed a petition for a writ of Certiorari with the Supreme Court in March 2007, requesting review of the Federal Circuit’s 2004 decision.  Amgen’s petition was denied on May 14, 2007 and the case was remanded to the District Court.

Under the existing decisions, the Company and Sanofi-Aventis would be precluded from making, using and selling DYNEPO in the United States until the expiration of the relevant patents.  The Company is required to reimburse Sanofi-Aventis, which controls the litigation and is paying the litigation expenses, for 50% of the expenses incurred in connection with the litigation from and after March 26, 2004.  This litigation has no impact on Shire’s ability to make, use and sell DYNEPO outside of the United States.

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Appraisal Rights

In connection with Shire’s merger with TKT, former holders of approximately 11.7 million shares of TKT common stock submitted written demands to the Delaware Court of Chancery for appraisal of these shares and, as a result, elected not to accept the $37 per share merger consideration.  On October 10, 2005 at the request of one of the holders to tender 365,000 shares at the merger price of $37 per share, TKT filed a motion to dismiss the holder’s demand.  On October 12, 2005 the Delaware Court of Chancery granted this motion, and the holder tendered the shares at the merger consideration of $37 per share.  Therefore, as at September 30, 2007, former holders of approximately 11.3 million shares of TKT common stock maintained written demands for appraisal of these shares and have elected not to accept the $37 merger consideration.  In November 2005, the Delaware Court of Chancery approved a stipulated consolidation order whereby actions brought by all petitioners have been consolidated as one case. In April 2006, Shire filed a motion for partial summary judgment in respect of approximately 8 million shares, claiming that the petitioners were not entitled to assert appraisal rights in connection with such shares.  In May 2007, the Delaware Court of Chancery denied this motion and held that the owners of such shares were entitled to seek appraisal of them.

To the extent that petitioners’ demands were validly asserted in accordance with the applicable requirements of Delaware law and the former holders perfect their rights thereunder, such former holders will be entitled to receive the fair value of these shares as determined by the Delaware Court of Chancery. The determination of fair value will be made excluding any element of value arising from the transaction, such as cost savings or business synergies. The Delaware Court of Chancery may ascribe a valuation to the shares that is greater than, less than or equal to $37 per share and may award interest on the amount determined in the appraisal process.

At September 30, 2007 the Company recorded a liability of $419.9 million based on the merger consideration of $37 per share for the 11.3 million shares outstanding at that time, plus a provision for interest of $53.1 million that may be awarded by the Court.

The total consideration for the acquisition of TKT, including amounts payable in respect of stock options and convertible securities, is approximately $1.6 billion at the merger price of $37 per share. This could change if Shire is required to pay a different amount of consideration in respect of the approximately 11.3 million shares for which holders have asserted appraisal rights. For every dollar increase/decrease in the merger consideration applicable to those TKT shareholders who have asserted appraisal rights, the total estimated purchase price would increase/decrease by approximately $11.3 million. Until such time as the appraisal process is complete, the Company is unable to determine the extent of its liability.  As a result of the new action described below, the April 23, 2007 trial date previously set for the first appraisal rights action was postponed.

On March 8, 2007 certain of the former TKT shareholders who previously asserted appraisal rights in connection with the Shire/TKT merger filed a second suit in the Delaware Chancery Court alleging, among other claims, breaches of fiduciary duty by TKT and certain members of its board in connection with the merger with Shire. Shire plc and TKT have been named as defendants as are four former directors of TKT. The new complaint also asserts a claim that the merger itself was not properly approved by a majority of the outstanding stock of TKT entitled to vote. The complaint seeks rescissory damages with interest, attorneys’ fees and costs.  A consolidated trial for both actions is scheduled for May 2008.

Class Action Shareholder Suit

In January and February 2003, various parties filed purported securities fraud class action lawsuits against TKT and Richard Selden, TKT's former Chief Executive Officer, in the United States District Court for the District of Massachusetts. In April 2003, the Court appointed a Lead Plaintiff and Lead Counsel and consolidated the various matters under one matter: In re Transkaryotic Therapies, Inc., Securities Litigation, C.A. No. 03-10165-RWZ.

In July 2003, the plaintiffs filed a Consolidated and Amended Class Action Complaint (the "Amended Complaint") against TKT; Dr Selden; Daniel Geffken, TKT's former Chief Financial Officer; Walter Gilbert, Jonathan S. Leff, Rodman W. Moorhead, III, and Wayne P. Yetter, then members of TKT's board of directors; William R. Miller and James E. Thomas, former members of TKT's board of directors; and SG Cowen Securities Corporation, Deutsche Bank Securities Inc., Pacific Growth Equities, Inc. and Leerink Swann & Company, underwriters of TKT’s common stock in prior public offerings.

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The Amended Complaint alleges that the defendants made false and misleading statements and failed to disclose material information concerning the status and progress for obtaining United States marketing approval of REPLAGAL during the period between January 4, 2001 and January 10, 2003. The Amended Complaint asserts claims against Dr. Selden and TKT under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder; and against Dr. Selden under Section 20(a) of the Exchange Act. The Amended Complaint also asserts claims based on TKT's public offerings of June 29, 2001, December 18, 2001 and December 26, 2001 against each of the defendants under Section 11 of the Securities Act of 1933 and against Dr. Selden under Section 15 of the Securities Act; and against SG Cowen Securities Corporation, Deutsche Bank Securities Inc., Pacific Growth Equities, Inc., and Leerink Swann & Company under Section 12(a)(2) of the Securities Act. The plaintiffs seek equitable and monetary relief, an unspecified amount of damages, with interest, and attorneys' fees and costs.

In May 2004, the Court granted in part and denied in part TKT's motion to dismiss. In particular, the Court dismissed allegations against TKT to the extent they arose out of certain forward-looking statements protected by the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and dismissed claims based on the public offerings of June 29, 2001 and December 18, 2001. The Court allowed all other allegations to remain. In July 2004, the plaintiffs voluntarily dismissed all claims based on the third public offering dated December 26, 2001.

In November 2005, the court granted the plaintiffs’ motion for class certification.  On May 23, 2005, the court entered judgment on all claims alleged against SG Cowen Securities Corporation, Deutsche Bank Securities Inc., Pacific Growth Equities, Inc., and Leerink Swann & Company.  On June 5, 2006, the court entered judgment on all claims alleged against Messrs. Gilbert, Leff, Moorhead, Yetter, Miller, and Thomas.  On November 9, 2006, Mr. Geffken filed an Agreement for Judgment on all claims alleged against him.  On September 1, 2005 the SEC filed suit against Dr. Selden. The case is entitled Securities and Exchange Commission v. Richard B. Selden, Civil Action No. 05-11805-NMG (D. Mass.) ("the SEC Action"). The Company is obligated to indemnify Dr Selden for his costs incurred in connection with the SEC Action.

In October 2007, the parties reached an agreement in principle to resolve the Class Action Shareholder Suit, subject to court approval, for $50 million, Shire will contribute $27 million toward the settlement and its insurance companies will contribute the remaining $23 million.  The $27 million settlement cost has been provided for within SG&A during this quarter.

19. Shareholders’ Equity

(i)       Common stock

On February 20, 2007 Shire plc raised $877.3 million, net of associated issue costs, through the private placement of 42.9 million new ordinary shares to certain institutional investors at a price of 1075 pence per share.  The newly issued shares represent approximately 8.4 per cent of Shire plc's issued ordinary share capital prior to the placing.

(ii)      Distributable reserves

Under English law, Shire plc can pay dividends only out of its distributable reserves, as defined in English law.  At September 30, 2007 Shire plc’s distributable reserves were approximately $3.8 billion.

(iii)     Treasury stock

The Company records the purchase of its own shares by the Employee Share Option Trust as a reduction of shareholders’ equity based on the price paid for the shares.  At September 30, 2007, the ESOT held 8.5 million ordinary shares and 1.8 million American Depository Shares (ADS).  During the nine months to September 30, 2007 a total of 2.9 million ordinary shares and 1.7 million ADSs had been purchased for total consideration of $168.5 million, including stamp duty and broker commission.

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20. Earnings per share

The following table reconciles income/(loss) from continuing operations and the weighted average ordinary shares outstanding for basic and diluted earnings per share for the periods presented:

	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
Income/(loss) from continuing operations		34.7		87.2		(1,663.9	)		169.0
Gain on disposition of discontinued operations		-		-		-			40.6
Numerator for basic and diluted earnings per share		34.7		87.2		(1,663.9	)		209.6
Weighted average number of shares:	No. of shares Millions		No. of shares Millions		No. of shares Millions			No. of shares Millions
Basic(1)		546.4		504.0		538.9			503.6
Effect of dilutive shares:
Stock options(2)		8.2		4.5		-			4.5
Warrants(2)		0.1		0.6		-			0.6
		8.3		5.1		-			5.1
Diluted		554.7		509.1		538.9			508.7

(1) Excludes shares purchased by the Employee Stock Ownership Trust and presented by the Company as treasury stock.

(2) Calculated using the treasury stock method.

The instruments not included in the calculation of the diluted weighted average number of shares are shown below:

	3 months to  September 30, 2007(1)(2)		3 months to  September 30, 2006(1)		9 months to  September 30, 2007(3)		9 months to  September 30, 2006(1)
	No. of shares Millions		No. of shares Millions		No. of shares Millions		No. of shares Millions
Stock options in the money		-		-		7.8		-
Stock options out of the money		1.0		10.1		2.0		10.1
Warrants		-		-		0.4		-
Convertible bonds 2.75% due 2014		32.7		-		17.3		-

⁽¹⁾ For the three months ended September 30, 2007 and the three and nine months ended September 30, 2006, certain stock options and warrants have been excluded from the calculation of diluted EPS because their exercise prices exceeded Shire plc’s average share price during the calculation period.

⁽²⁾ For the three months ended September 30, 2007, the convertible bonds were not included in the calculation of the diluted weighted average number of shares, because their effect would be anti-dilutive in the period.

⁽³⁾ For the nine months ended September 30, 2007, all share options, warrants and convertible bonds were excluded from the calculation of the diluted weighted average number of shares, because the Company made a net loss during the calculation period and the effect of their inclusion would be anti-dilutive.

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21. Segmental reporting

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No. 131”) establishes standards for reporting information about operating segments and related disclosures, products and services, geographic areas and major customers.  Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance.

During the nine months to September 30, 2007, Shire began internal financial reporting in line with a business unit and management reporting structure based on two segments: Specialty Pharmaceuticals (“SP”) and Human Genetic Therapies (“HGT”).

The SP and HGT segments represent the Company’s revenues and costs in respect of currently promoted and sold products, together with the costs of developing products for future commercialization.  ‘All Other’ has been included in the table below in order to reconcile the segments to the total consolidated figures.

The Company evaluates performance based on revenue and operating income/(loss). The Company does not have inter-segment transactions. Prior period amounts have been reclassified to conform to the new current period presentation. Assets that are directly attributable to the segments have been separately disclosed.

	SP			HGT		All Other			Total
3 months to September 30, 2007	$’M			$’M		$’M			$’M
Product sales		447.3			95.8		-			543.1
Royalties		0.3			-		61.6			61.9
Other revenues		1.5			0.7		1.5			3.7
Total revenues		449.1			96. 5		63.1			608.7
Cost of product sales(1) (2)		64.4			11.4		3.7			79.5
Research and development(1)		142.4			38.3		-			180.7
Selling, general and administrative(1)		207.3			21.9		57.5			286.7
Depreciation and amortization		30.8			11.6		3.9			46.3
Gain on sale of product rights		(7.1	)		-		-			(7.1	)
Total operating expenses		437.8			83.2		65.1			586.1
Operating income/(loss)		11.3			13.3		(2.0	)		22.6
Total assets		2,383.3			611.5		1,099.7			4,094.5
Long lived assets(3)		164.9			96.3		76.4			337.6
Capital expenditure on long lived assets(3)		13.7			11.0		3.8			28.5

^{(1) Stock-based compensation of $11.7 million is included in: cost of product sales ($0.9 million), research and development ($3.3 million) and selling, general and administrative ($7.5 million).}

^{(2) Depreciation from manufacturing plants of $1.3 million and amortization of favorable manufacturing contracts of $0.5 million is included in cost of product sales.}

^{(3) Long-lived assets predominately relate to property, plant and equipment.}

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	SP			HGT			All Other		Total
3 months to September 30, 2006	$’M			$’M			$’M		$’M
Product sales		349.5			36.7			-		386.2
Royalties		0.7			-			59.7		60.4
Other revenues		2.5			0.3			-		2.8
Total revenues		352.7			37.0			59.7		449.4
Cost of product sales(1) (2)		46.6			12.3			2.8		61.7
Research and development(1)		74.6			29.4			-		104.0
Selling, general and administrative(1)		166.5			16.1			32.3		214.9
Depreciation and amortization		11.2			10.4			4.0		25.6
Gain on sale of product rights		(63.0	)		-			-		(63.0	)
Total operating expenses		235.9			68.2			39.1		343.2
Operating income/(loss)		116.8			(31.2	)		20.6		106.2
Total assets		1,130.2			526.0			1,305.2		2,961.4
Long lived assets(3)		142.5			59.4			75.2		277.1
Capital expenditure on long lived assets(3)		8.8			6.1			13.5		28.4

^{(1) Stock-based compensation of $9.1 million is included in: cost of product sales ($0.8 million), research and development ($1.4 million) and selling, general and administrative ($6.9 million).}

^{(2) Depreciation from manufacturing plants ($1.4 million) is included in cost of product sales.}

^{(3) Long-lived assets predominately relate to property, plant and equipment.}

	SP			HGT		All Other		Total
9 months to September 30, 2007	$’M			$’M		$’M		$’M
Product sales		1,279.3			229.5		-		1,508.8
Royalties		1.3			-		184.1		185.4
Other revenues		8.2			5.5		3.9		17.6
Total revenues		1,288.8			235.0		188.0		1,711.8
Cost of product sales(1) (2)		181.3			22.8		9.2		213.3
Research and development(1)		259.5			104.2		-		363.7
Selling, general and administrative(1)		561.6			71.8		120.1		753.5
Depreciation and amortization		59.6			34.4		13.4		107.4
In process R&D		1,896.0			-		-		1,896.0
Gain on sale of product rights		(12.1	)		-		-		(12.1	)
Integration		1.3			-		-		1.3
Total operating expenses		2,947.2			233.2		142.7		3,323.1
Operating (loss)/income		(1,658.4	)		1.8		45.3		(1,611.3	)
Total assets		2,383.3			611.5		1,099.7		4,094.5
Long lived assets(3)		164.9			96.3		76.4		337.6
Capital expenditure on long lived assets(3)		17.6			21.2		23.3		62.1

^{(1) Stock-based compensation of $34.1 million is included in: cost of product sales ($2.6 million), research and development ($8.9 million) and selling, general and administrative ($22.6 million).}

^{(2) Depreciation from manufacturing plants of $3.9 million and amortization of favorable manufacturing contracts of $0.5 million is included in cost of product sales.}

^{(3) Long-lived assets predominately relate to property, plant and equipment.}

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	SP			HGT			All Other		Total
9 months to September 30, 2006	$’M			$’M			$’M		$’M
Product sales		1,017.4			90.8			-		1,108.2
Royalties		1.6			-			180.2		181.8
Other revenues		8.5			1.0			-		9.5
Total revenues		1,027.5			91.8			180.2		1,299.5
Cost of product sales(1) (2)		119.6			57.6			8.1		185.3
Research and development(1)		218.8			85.2			-		304.0
Selling, general and administrative(1)		458.1			53.3			82.8		594.2
Depreciation and amortization		31.4			30.1			10.8		72.3
Gain on sale of product rights		(63.0	)		-			-		(63.0	)
Integration costs		-			3.9			-		3.9
Total operating expenses		764.9			230.1			101.7		1,096.7
Operating income/(loss)		262.6			(138.3	)		78.5		202.8
Total assets		1,130.2			526.0			1,305.2		2,961.4
Long lived assets(3)		142.5			59.4			75.2		277.1
Capital expenditure on long lived assets		17.6			15.3			38.3		71.2

^{(1) Stock-based compensation of $25.8 million is included in: cost of product sales ($2.3 million), research and development ($4.2 million) and selling, general and administrative ($19.3 million).}

^{(2) Depreciation from manufacturing plants ($3.5 million) is included in cost of product sales.}

^{(3) Long-lived assets predominately relate to property, plant and equipment.}

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Company’s unaudited consolidated financial statements and related notes appearing elsewhere in this report.

Overview

Shire’s strategic goal is to become the leading specialty biopharmaceutical company that focuses on meeting the needs of the specialist physician.  Shire focuses its business on attention deficit and hyperactivity disorder (ADHD), human genetic therapies (HGT), gastrointestinal (GI) and renal diseases. The structure is sufficiently flexible to allow Shire to target new therapeutic areas to the extent opportunities arise through acquisitions.  Shire’s in-licensing, merger and acquisition efforts are focused on products in niche markets with strong intellectual property protection either in the US or Europe.  Shire believes that a carefully selected portfolio of products with strategically aligned and relatively small-scale sales forces will deliver strong results.

Recent developments

Class Action Shareholder suit

In January and February 2003, various parties filed purported securities fraud class action lawsuits against Transkaryotic Therapy Inc. ("TKT") and several of its former officers and directors in the United States District Court for the District of Massachusetts.  In April 2003, the Court consolidated the various matters under one matter: In Re Transkaryotic Therapies, Inc., Securities Litigation, C.A. No 03-10165-RWZ. The plaintiffs alleged, among other things, that the defendants made false and misleading statements and failed to disclose material information regarding REPLAGAL during the period between January 4, 2001 and January 10, 2003.  In October 2007, all the parties to the legal proceedings reached an agreement in principle to resolve the matter, subject to Court approval, for $50 million.  Shire will contribute $27 million towards the settlement and its insurance carriers will contribute the remaining $23 million.  The $27 million settlement cost has been provided for within Selling, general and administrative expenses during this quarter.

For further information about the litigation proceedings relating to the Company’s ADDERALL XR patents see ITEM 1 of Part II of this Form 10-Q: Legal Proceedings.

Product Divestments

On October 8, 2007 the Company announced the sale of a portfolio of non core products to Laboratorios Almirall S.A. (“Almirall”) for a cash consideration of $213 million.  The portfolio comprises the dermatology products SOLARAZE and VANIQA and six non-promoted products across a range of indications, which are sold by Shire primarily in the UK, France, Germany, Italy, Spain and Ireland.  Total sales for these products in 2006 were $53.8 million.  Shire will also transfer to Almirall 63 employees directly affected by the sale.  The sale is subject to customary consents.

These products are being divested as they are no longer core to Shire’s strategy of building market leading positions in specialty markets through the development and commercialization of global products with strong intellectual property protection.

ELAPRASE

On October 17, 2007 Shire’s ELAPRASE was launched in Japan following receipt of marketing and reimbursement approval.  As a result of a 2003 agreement, Genzyme Corporation (“Genzyme”) will manage sales and distribution of ELAPRASE in Japan.  Shire's gross profit on the arrangement will equate to an effective royalty of approximately 25%-30%, but revenues will be recorded in product sales.

Milestones totaling $7 million are due to Shire from Genzyme following marketing and reimbursement approval.  These milestones will be recognized into other revenue over the expected duration of the agreement.

FOSRENOL for Chronic Kidney Disease (“CKD”)

On October 16, 2007 the Food and Drug Administration (“FDA”) Cardiovascular and Renal Drugs Advisory Committee recommended the use of phosphate binders, including Shire’s FOSRENOL, to treat hyperphosphatemia (elevated levels of phosphorus in the blood) in CKD stage 4 patients.  The FDA Advisory Committee’s recommendation is not binding on the FDA, and no time has been set by which the FDA will decide whether to follow this recommendation.

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Significant events in the three months to September 30, 2007

JUVISTA

On August 15, 2007, following the expiry of the Hart-Scott-Rodino ("HSR") waiting period, Shire’s agreement with Renovo Group plc (“Renovo”) became effective.  Under the terms of this agreement, Shire has exclusive rights to commercialize JUVISTA worldwide (with the exception of EU member states).  Shire paid Renovo a $75 million up-front payment in respect of the license (expensed during this quarter as R&D) and made a $50 million equity investment in Renovo (at a subscription price of £2 per ordinary share, representing approximately 6.5% of Renovo’s share capital).  Shire’s future financial obligations under the agreement are geared to the successful development and commercialization of JUVISTA.

DAYTRANA

On September 4, 2007 Shire announced the voluntary market withdrawal of a limited quantity of the ADHD patch DAYTRANA.  Shire’s decision was not linked to either safety or efficacy issues, but was in response to feedback from patients and caregivers, who had experienced difficulty removing the release liner.  Patches are now being manufactured using a new enhanced process, which Shire believes offers patients and caregivers improved ease of use when peeling off the release liner.  At October 19, 2007 DAYTRANA’s market share was 2.1%.

Divestment of EQUETRO

On September 10, 2007 Shire sold EQUETRO to Validus Pharmaceuticals Inc. (“Validus”) for a cash consideration of $7.5 million and transferred to Validus all post approval study commitments.

Change in Senior Management

On September 24, 2007 Shire appointed Sylvie Gregoire as President of its HGT business.  Sylvie brings more than 20 years of management, regulatory affairs, manufacturing and supply chain experience from biotechnology and pharmaceutical companies including Biogen Idec and Merck & Co. Sylvie replaces David Pendergast, former President of HGT, whose retirement was announced in March of this year.  To ensure a smooth transition, David will continue with Shire through 2007 as an advisor.  

New Non-Executive Director

On October 31, 2007 David Mott joined Shire's Board of Directors as a Non Executive Director.   Mr Mott is Chief Executive Officer and President of MedImmune, Inc, a role he was appointed to in 2000. He joined MedImmune in 1992 and has held positions of increasing responsibility in finance, strategic planning, business development, medical and regulatory including the positions of Chief Financial Officer and Chief Operating Officer. MedImmune was acquired by AstraZeneca (AZ) in June 2007, and Mr. Mott is also now serving as an executive vice president of AZ and a member of AZ’s Senior Executive Team.

Mr Mott is a member of the Board of Directors of Rib-X Pharmaceuticals and also serves on the Boards of Directors of the Biotechnology Industry Organization (BIO), the Technology Council of Maryland and MdBio. He holds a bachelor’s degree in economics and government from Dartmouth College, New Hampshire, USA.

Research and development

Products in registration at September 30, 2007

INTUNIV (previously known as SPD503) for ADHD:  On June 21, 2007 Shire received an approvable letter from the FDA for INTUNIV.  Shire is working with the FDA to provide a full and timely response to the agency’s request and expects to respond to the letter during Q4 2007.

SPD465 for ADHD: In August 2007, Shire received a Notice of Non Compliance from Health Canada.  As with the FDA’s May 2007 approvable letter, this includes questions which must be addressed for the regulatory review of the product to continue.  Shire is evaluating its response to these letters.

VYVANSE for Adult ADHD: On June 29, 2007 Shire submitted a supplemental New Drug Application (“sNDA”) to the FDA for VYVANSE for the treatment of ADHD in adults.  The Prescription Drug User Fee Act (“PDUFA”) date for the FDA to issue a formal response to this application is April 28, 2008.  On October 25, 2007 Shire released results

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from the Phase 3 clinical trials in adults.  In this double-blind, placebo-controlled, four-week study with dose escalations in 414 adults aged 18 to 55 years, treatment with VYVANSE at all doses studied (30 mg, 50 mg, 70 mg) was significantly more effective than placebo.

VYVANSE for pediatric ADHD: Shire is expecting a decision from the FDA on the approvability of VYVANSE intermediate strength products in the pediatric indication by the PDUFA date, December 15, 2007. If approved, this would make 20mg, 40mg and 60mg product available, which are designed to increase the flexibility of the dosing of VYVANSE for the pediatric indication in the US.

Products in clinical development as at September 30, 2007

JUVISTA:  On September 12, 2007 Renovo announced positive Phase 2 clinical trial results for its lead drug, JUVISTA.  This is the fifth statistically significant Phase 2 efficacy trial announced by Renovo and forms part of an ongoing range of Phase 2 clinical studies.

VYVANSE for ADHD in EU & Canada: The Company is planning on making regulatory filings in Canada for VYVANSE in 2008 and in Europe in 2009.

DAYTRANA for ADHD in EU & Canada: The Company is on target for making regulatory filings in Europe and Canada for DAYTRANA in Q4 2007.

GENE ACTIVATED Glucocerebrosidase (velaglucerase alfa) (“GA-GCB”) for Gaucher disease: GA-GCB is under development for the treatment of type 1 Gaucher disease. The Phase 3 clinical program is ongoing on a worldwide basis. It is anticipated that this development program will support global registration of GA-GCB in 2010.

SEASONIQUE an extended-cycle oral contraceptive: Shire is meeting with European Regulatory Agencies in Q4 2007 and plans for submission of regulatory filings in the EU are underway.

Transvaginal Ring (TVR) Technology: The clinical trials programs for the TVR technology products are progressing.

SPD491 for pain: A Phase 1 clinical program has begun and further preclinical and formulation studies are ongoing.

SPD487 (Amphetamine transdermal system ("ATS")) for ADHD: In June 2007 following completion by Noven Pharmaceuticals Inc. (“Noven”) of Phase 1 studies for ATS, Shire paid $5.9 million to Noven to acquire exclusive development rights to ATS.

SPD493 (Valrocemide): The Company intends to study SPD493 in a number of central nervous system disorders. A Phase 1 clinical program was started in October 2007.

NRP290 for pain: Shire is in the process of evaluating the data in relation to NRP290 to determine what type of development program would be needed should further development be undertaken.

Products in pre-clinical development as at September 30, 2007

SPD500 Tissue protective cytokine technology: SPD500 is being developed pre-clinically in non-nervous systems indications, including renal and genetic disease areas. Preclinical studies are underway.

SPD535 for disorder of platelet levels: Pre-clinical evaluation is ongoing for development of a novel platelet lowering agent.

Enzyme Replacement Therapies (“ERT”):  The Company has completed animal model studies and has advanced into pre-clinical development on three projects for the treatment of lysosomal storage disorders; namely ERT for Sanfilippo syndrome (Mucopolysaccharidosis IIIA), metachromatic leukodystrophy and delivery of ELAPRASE for Hunter syndrome patients with significant central nervous system symptoms (Hunter CNS).

DYNEPO for the treatment of chemotherapy induced anemia in cancer patients:  The Company will evaluate the opportunities for pursuing an indication in oncology for DYNEPO now that the recommendations of the European Medicines Agency safety review of all EU approved erythropoietins have been received. Scientific Advice meetings are being arranged with German and French regulatory authorities to discuss this.

40

Results of operations for the three months to September 30, 2007 and 2006

Total revenues

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

	3 months to September 30, 2007		3 months to September 30, 2006		change
	$M		$M		%
Product sales		543.1		386.2		+41
Royalties		61.9		60.4		+2
Other		3.7		2.8		+32
Total		608.7		449.4		+35

Product sales

The following table provides an analysis of the Company’s key product sales:

	3 months to September 30, 2007 $M		3 months to September 30, 2006 $M		Product sales growth %		US prescription growth  %
Specialty Pharmaceuticals
ADHD
ADDERALL XR		249.0		207.6		+20		+3
VYVANSE		10.6		-	N/A		N/A
DAYTRANA		9.4		9.9		-5		+64
ADDERALL		-		6.3	N/A		N/A
GI
PENTASA		43.7		36.9		+18		+2
LIALDA		16.3		-	N/A		N/A
RENAL
FOSRENOL		28.7		12.2		+135		-
DYNEPO		4.4		-	N/A		N/A
GP
CALCICHEW		13.5		11.1		+22	N/A
CARBATROL		19.3		20.4		-5		-5
REMINYL/REMINYL XL		8.2		5.7		+44	N/A
XAGRID		16.8		13.3		+26	N/A
Other product sales		27.4		26.1		+5
		447.3		349.5		+28
Human Genetic Therapies
REPLAGAL		40.7		32.4		+26	N/A
ELAPRASE		55.1		4.3	N/A		N/A
		95.8		36.7		+161
Total product sales		543.1		386.2		+41

41

The following discussion includes references to prescription and market share data for the Company’s key products.  The source of this data is IMS Health ("IMS"), September 2007.  IMS Health is a leading global provider of business intelligence for the pharmaceutical and healthcare industries.

Specialty Pharmaceuticals

ADDERALL XR

ADDERALL XR had an average market share of 25% during Q3 2007 (2006: 26%).  The fall in average market share followed the launch of VYVANSE in July 2007.  US prescriptions for ADDERALL XR for the three months to September 30, 2007 increased by 3% compared to the same period in 2006 due to a 6% growth in the US ADHD market offset by the 1% fall in average market share.

Sales of ADDERALL XR for the three months to September 30, 2007 were $249.0 million, an increase of 20% compared to the same period in 2006 (2006: $207.6 million).  Product sales growth was higher than prescription growth due primarily to a price increase in January 2007 and wholesaler stocking.  Shire also introduced an 8% price increase to ADDERALL XR on October 1, 2007.

As previously disclosed, the United States Federal Trade Commission (“FTC”) informed Shire on October 3, 2006 that it was reviewing the ADDERALL XR patent litigation settlement agreement between Shire and Barr Laboratories, Inc. ("Barr").  On June 22, 2007, the Company received a civil investigative demand requesting that it provides information to the FTC relating to its settlement with Barr and its earlier settlement with Impax Laboratories, Inc. The Company is cooperating fully with this investigation and believes that the settlements are in compliance with all applicable laws.

For further information about the litigation proceedings relating to the Company’s ADDERALL XR patents see ITEM 1 of Part II of this Form 10-Q: Legal Proceedings.  Any decrease in the sales of ADDERALL XR would significantly reduce revenues and earnings.

VYVANSE

VYVANSE’s average share of the US ADHD prescription market during Q3 2007 was 2.4% following the launch of VYVANSE in July 2007, and market share had reached 3.7% by September 30, 2007.  Product sales of $10.6 million for the three months to September 30, 2007 were net of $20.5 million sales deductions, primarily coupons, wholesaler discounts and rebates, which is expected to trend over time to approximately 28% of product sales before sales deductions.

Launch stocks of $55.9 million (before sales deductions) were shipped to wholesalers in June 2007, with a further $1.9 million shipped in July 2007.  Sales of launch stocks are being recognized into revenue as prescription demand is confirmed by IMS data.  By September 30, 2007 these launch stocks had decreased to $36.9 million as patients purchased VYVANSE.  Product sales of VYVANSE totaled $10.6 million comprising of $20.9 million of sales based on prescription demand, a further $10.2 million of sales from wholesaler restocking, net of sales deductions of $20.5 million.  All initial launch stocks are expected to be recognized into revenue by the end of 2007.

DAYTRANA

DAYTRANA’s average share of the US ADHD market increased to 2.1% in Q3 2007 compared to 1.3% in Q3 2006.  Increased market share together with 6% growth in the US ADHD market resulted in US prescriptions of DAYTRANA for the three months to September 30, 2007 being up 64% compared to the same period in 2006.  

Product sales for the three months to September 30, 2007 were $9.4 million, a decrease of 5% compared to the same period in 2006 (2006: $9.9 million).  There was a slight fall in net sales as the increase in US prescriptions and lower coupon redemptions were more than offset by no wholesaler stocking in Q3 2007 (compared to stocking in Q3 2006 following the launch in June 2006), and a provision made for returns following the voluntary market withdrawal of a limited quantity of DAYTRANA patches.

The addition of VYVANSE, combined with ADDERALL XR and DAYTRANA’s market share has helped Shire grow its total share of the US ADHD market to 30% at September 30, 2007 compared to 28% at September 30, 2006 (excluding ADDERALL, which was divested by Shire in Q3 2006).  Shire’s combined ADHD portfolio forms the leading portfolio of products in the US ADHD market.

PENTASA

US prescriptions of PENTASA for the three months to September 30, 2007 were up 2% compared to the same period in 2006 primarily due to a 4% increase in the US oral mesalamine prescription market, offset by a small decrease in PENTASA’s average market share from 17.4% in Q3 2006 to 17.1% in Q3 2007.

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Sales of PENTASA for the three months to September 30, 2007 were $43.7 million, an increase of 18% compared to the same period in 2006 (2006: $36.9 million).  Sales growth is higher than prescription growth primarily due to the continued shift to the 500mg strength capsules as well as the impact of price increases in November 2006 and August 2007.

LIALDA

Shire launched LIALDA during March 2007.  By September 30, 2007 LIALDA had reached a US market share of 6.4%.  Preparations are underway for the European launch, commencing with the UK in Q4 2007.  In the UK and Ireland the product will be called MEZAVANTXL and Shire plans to market the product in most other EU countries as MEZAVANT.

In Q3 2007 LIALDA’s average share of the US oral mesalamine prescription market was 5.4%.  LIALDA’s product sales for the three months to September 30, 2007 were $16.3 million (Q2 2007: $5.0 million).

Remaining launch stocks of $28.0 million (before sales deductions) at June 2007 decreased to $14.4 million by September 30, 2007 as patients purchased LIALDA.  Sales of launch stocks are being recognized into revenue as prescription demand is confirmed by IMS data.  Product sales of LIALDA in the quarter totaled $16.3 million, comprising of $13.6 million of sales based on prescription demand, $6.6 million of sales from non retail demand and wholesaler restocking, net of sales deductions of $3.9 million (mainly discounts, wholesaler fees and rebates). All initial launch stocks are expected to be recognized into revenue by the end of 2007.

Since the launch of LIALDA in March 2007, PENTASA and LIALDA’s combined share of the US oral mesalamine prescription market had grown to 23% by September 30, 2007, up from 18% at September 30, 2006.

FOSRENOL

FOSRENOL has now been launched in 23 countries and global sales totaled $28.7 million for the quarter ended September 30, 2007 (2006: $12.2 million).  In Europe, FOSRENOL has been launched in Germany, France, UK, Italy and a number of other countries; launches will continue throughout 2008, including in Spain, subject to finalization of national marketing authorizations and the conclusion of pricing and reimbursement negotiations.  European sales of FOSRENOL for the three months to September 30, 2007 were $12.4 million, up 38% compared with Q2 2007 ($9.0 million).

US sales of FOSRENOL for the three months to September 30, 2007 were up 43% to $16.3 million compared to the same period in 2006 (2006: $11.4 million).  FOSRENOL’s average market share of the US phosphate binder market remained constant at 9%.  The increase in product sales is due to the uptake in higher strength doses of FOSRENOL and wholesaler de-stocking of initial launch stocks in Q3 2006.

CARBATROL

US prescriptions for CARBATROL for the three months ending September 30, 2007 were down 5% compared to the same period in 2006.  This was primarily due to a comparable decline in the US extended release carbamazepine prescription market.

Sales of CARBATROL for the three months to September 30, 2007 were $19.3 million, a decrease of 5% compared to the same period in 2006 (2006: $20.4 million).  The sales decrease was in line with the decrease in prescriptions, as a sales price increase in April 2007 and wholesaler stocking during Q3 2007 were offset by higher sales deductions.

Patent litigation proceedings relating to CARBATROL are ongoing.  For further information on patent litigation proceedings relating to CARBATROL see ITEM 1 of Part II of this Form 10-Q: Legal Proceedings.

XAGRID

Sales for the three months to September 30, 2007 were $16.8 million, an increase of 26% compared to the same period in 2006 (2006: $13.3 million).  Expressed in transaction currencies (XAGRID is primarily sold in Euros and Pounds sterling), sales increased by 17% due to growth in many of Shire’s existing markets, with exchange rate movements against the US dollar accounting for the remaining 9% increase.

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Human Genetic Therapies

REPLAGAL

Sales for the three months to September 30, 2007 were $40.7 million, an increase of 26% compared to the same period in 2006 (2006: $32.4 million).  Expressed in transaction currencies (REPLAGAL is primarily sold in Euros and Pounds sterling) sales increased by 18% due to higher unit sales in Europe and Canada, with exchange rate movements against the US dollar accounting for the remaining 8% increase.

ELAPRASE

Sales for the three months to September 30, 2007 were $55.1 million (2006: $4.3 million).  Q3 2007 sales represent a 29% increase over sales for Q2 2007 ($42.7 million).  ELAPRASE was successfully launched in the US in August 2006 and in several major European markets during the first half of 2007.  ELAPRASE is now approved for marketing and commercial distribution in 34 countries worldwide.

Foreign exchange effect

Revenues reported in US dollars include the impact of translating sales made in local currency (primarily Euros and Pounds sterling) into US dollars.  The table below shows the effect of foreign exchange translations on the revenue growth of the key affected products as well as the underlying performance of key products in their local currency:

	3 months to September 30, 2007 sales $M		3 months to September 30,  2007 sales growth in local currency %		3 months to September 30, 2007 sales growth in US dollars %		Impact of translation to US dollars %
XAGRID
- sales in Euros		10.4		+23		+32		+9
- sales in Pounds sterling		6.4		+8		+17		+9
REPLAGAL
- sales in Euros		23.2		+12		+20		+8
- sales in Pounds sterling		7.1		+35		+46		+11
CALCICHEW sales in Pounds sterling		12.2		+14		+23		+9
REMINYL and REMINYL XL sales in Pounds sterling		7.7		+37		+48		+11

Royalties

Royalty revenue increased by 2% to $61.9 million for the three months to September 30, 2007 (2006: $60.4 million).  The following table provides an analysis of Shire’s royalty income:

	3 months to September 30, 2007		3 months to September 30, 2006		Change
	$M		$M		%
3TC		36.7		36.5		+1
ZEFFIX		10.2		9.3		+10
Others		15.0		14.6		+3
Total		61.9		60.4		+2

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3TC

Royalties from sales of 3TC for the three months to September 30, 2007 were $36.7 million, an increase of 1% compared to the same period in 2006 (2006: $36.5 million).  The impact of foreign exchange movements has contributed 4% to the reported growth; excluding foreign exchange movements there has been a decline of 3% compared to the same period in 2006.

Shire receives royalties from GSK on worldwide 3TC sales.  GSK’s worldwide sales of 3TC for the three months to September 30, 2007 were $280 million, an increase of 2% compared to the same period in 2006 (2006: $275 million), but a decrease of approximately 3% on a constant exchange rate basis.  While the nucleoside analogue market for HIV has continued to grow, competitive pressures within the market have increased leading to a decline in 3TC sales.

ZEFFIX

Royalties from sales of ZEFFIX for the three months to September 30, 2007 were $10.2 million, an increase of 10% compared to the same period in 2006 (2006: $9.3 million).  The impact of foreign exchange movements has contributed 6% to the reported growth; excluding foreign exchange movements there has been an increase of 4% compared to the same period in 2006.

Shire receives royalties from GSK on worldwide ZEFFIX sales.  GSK’s worldwide sales of ZEFFIX for the three months to September 30, 2007 were $87 million, an increase of 9% compared to the same period in 2006 (2006: $80 million).  This increase was mainly due to strong growth in the Chinese market and favorable foreign exchange rate movements.

OTHER

Other royalties are primarily in respect of REMINYL and REMINYL XL (known as RAZADYNE and RAZADYNE ER in the US), a product marketed worldwide (excluding the UK and the Republic of Ireland) by Janssen Pharmaceutical N.V. (“Janssen”), an affiliate of Johnson & Johnson.  Shire has the exclusive marketing rights in the UK and the Republic of Ireland.

Barr and other companies have filed Abbreviated New Drug Applications (“ANDA”) with the FDA for generic versions of RAZADYNE. Janssen and Synaptech Inc. (“Synaptech”) have filed lawsuits against some of those ANDA filers.  A trial was held during the week of May 21, 2007.  No decision from the court has been issued to date.

In June 2006 Janssen and Synaptech filed a lawsuit against Barr for infringement of their patent rights relating to RAZADYNE ER as a result of Barr filing an ANDA with the FDA for a generic version of RAZADYNE ER.  In May 2007 Janssen and Synaptech also filed suit against Sandoz Inc. ("Sandoz") as a result of Sandoz filing an ANDA with the FDA.  No court date has been set in either proceedings. 

Cost of product sales

For the three months to September 30, 2007 the cost of product sales was 15% of product sales (2006: 16%).  The cost of product sales for REPLAGAL in 2006 included a $6.7 million adjustment in respect of inventories acquired through the acquisition of TKT.  This fair value adjustment increased Shire’s cost of product sales as a percentage of product sales for the three months to September 30, 2006 by 2%.  Excluding the impact of this fair value adjustment in 2006, cost of product sales as a percentage of product sales in the three months to September 30, 2007 increased by 1% compared to 2006 due to the impact of DAYTRANA inventory write-offs following the voluntary market withdrawal of a limited quantity of patches.

For the three months to September 30, 2007 cost of product sales included a charge of $0.9 million for share based compensation (2006: $0.8 million).

Research and development (R&D)

R&D expenditure increased to $180.7 million in the three months to September 30, 2007 (33% of product sales) from $104.0 million in the three months to September 30, 2006 (27% of product sales).  For the three months to September 30, 2007 R&D included an up-front payment to Renovo of $75.0 million for the in-licensing of JUVISTA (14% of product sales).  For the three months to September 30, 2006 R&D included $30.5 million of up-front payments (8% of product sales), comprising a $25.0 million payment to Duramed Pharmaceuticals Inc (“Duramed”) (in-licensing of women’s health products) and a $5.5 million payment to Warren Pharmaceuticals Inc ("Warren") (in-licensing of the Tissue Protective Cytokine technology).

45

The remaining increase in R&D expenditure was due to Phase 3(b) and Phase 4 studies to support new product launches; the continuation of Phase 3 trials on GA-GCB; the development of the Women’s Health and New River franchises; pre-clinical development of three HGT projects; two new Phase 1 projects; and two further pre-clinical projects.

For the three months to September 30, 2007 R&D included a charge of $3.3 million for share based compensation (2006: $1.4 million).

Selling, general and administrative (SG&A) expenses

Total SG&A costs increased from $240.5 million in the three months to September 30, 2006 to $333.0 million in the three months to September 30, 2007, an increase of 38%.  As a percentage of product sales, total SG&A expenses were 61% (2006: 62%).

3 months to September 30,	2007 $M		(1)2006 $M		Change %
Sales costs		85.4		64.6		+32
Marketing costs		114.9		94.7		+21
Other SG&A costs		86.4		55.6		+55
Depreciation and amortization(2)		46.3		25.6		+81
Total SG&A costs		333.0		240.5		+38

(1) 2006 amounts have been reclassified to conform to the 2007 presentation.

(2) Excludes depreciation from manufacturing plants of $1.3 million and amortization of favorable manufacturing contracts of $0.5 million (2006: depreciation of $1.4 million) which is included in cost of product sales.

The increase in total SG&A expenses included the impact of the following:

· Provision for the legal settlement of the TKT class action shareholder suit of $27 million (5% of product sales);

· An increase in the ADHD sales force to promote VYVANSE;

· The cost of the new GI sales force in the US;

· The launches of DYNEPO, LIALDA and VYVANSE; and

· An increase in depreciation and amortization (see below).

For the three months to September 30, 2007 SG&A included a charge of $7.5 million for share based compensation (2006: $6.9 million), representing 1% of product sales (2006: 2%).

The depreciation charge for the three months to September 30, 2007 was $15.2 million (2006: $11.0 million).  The increase in depreciation follows investment in Shire’s infrastructure to support the continuing growth of the Company.

The amortization charge for the three months to September 30, 2007 was $31.1 million (2006: $14.6 million).  The increase in amortization is primarily due to the amortization of DAYTRANA, DYNEPO and VYVANSE intangibles following the product launches in June 2006, March 2007 and July 2007 respectively.

Gain on disposal of product rights

For the three months to September 30, 2007 Shire recognized a gain of $7.1 million on the disposal of EQUETRO, a non-core product, to Validus.  During the three months to September 30, 2006 Shire recognized a gain of $63.0 million on the disposal of ADDERALL to Duramed.

Interest income

For the three months to September 30, 2007 Shire received interest income of $8.0 million (2006: $12.6 million).  Interest income primarily relates to interest received on cash balances.  Interest income for the three months to September 30, 2007 was lower than for the three months ending September 30, 2006 due to lower average cash balances following the acquisition of New River Pharmaceuticals, Inc. ("New River").

46

Interest expense

For the three months to September 30, 2007 Shire incurred interest expense of $18.0 million (2006: $7.0 million).  The increase in interest expense was mainly due to the interest payable on the $1.1 billion convertible bond issued in May 2007 as part of the long term funding for the acquisition of New River.

In the three months to September 30, 2007 and 2006 interest expense includes a provision for interest, which may be awarded by the Court in respect of amounts due to those ex-TKT shareholders who have requested appraisal of the acquisition consideration payable for their TKT shares.  A trial date for the appraisal rights litigation has been set for May 12, 2008.  For further information see ITEM 1 of Part II of this Form 10-Q: Legal Proceedings.

Taxation

The effective tax rate for the three months to September 30, 2007 was -211% (2006: 28%). The negative effective tax rate in the third quarter was primarily due to a higher than forecast level of tax deductible expenditure in that quarter in high-tax territories (principally the US) and reductions in specific tax liabilities relating to tax reviews and tax filings, all of which were finalized in the third quarter. When these changes arose in the three months to September 30, 2007, they caused a reversal of certain tax charges that had been expensed in the six months to June 30, 2007.  Excluding the IPR&D charge of $1,896.0 which is not tax deductible, the effective tax rate was reduced from 26% for the six months to June 30, 2007 to 16% for the nine months to September 30, 2007. 

In the three months to September 30, 2007, the liability for unrecognized tax benefit increased by $34.1 million, of which $16.1 million is due to foreign currency translations adjustments which have been recognized within Other Comprehensive Income.  The remaining increase of $18.0 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.

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.

Equity in earnings of equity method investees

Net earnings of equity method investees of $0.5 million were recorded for the three months to September 30, 2007 (2006: $1.2 million).  This comprised earnings of $1.7 million from the 50% share of the anti-viral commercialization partnership with GSK in Canada (2006: $1.6 million), offset by losses of $1.2 million being the Company’s share of losses in the GeneChem, AgeChem and EGS Healthcare Funds (2006: losses of $0.4 million).

47

Results of operations for the nine months to September 30, 2007 and 2006

Total revenues

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

	9 months to September 30, 2007		9 months to September 30, 2006		change
	$’M		$’M		%
Product sales		1,508.8		1,108.2		+36
Royalties		185.4		181.8		+2
Other		17.6		9.5		+85
Total		1,711.8		1,299.5		+32

Product sales

The following table provides an analysis of the Company’s key product sales:

	9 months to September 30, 2007 $M		9 months to September 30, 2006 $M		Product sales growth %		US prescription growth  %
Specialty Pharmaceuticals
ADHD
ADDERALL XR		753.2		634.4		+19		+5
VYVANSE		10.6		-	N/A		N/A
ADDERALL		-		25.2	N/A		N/A
DAYTRANA		41.2		9.9		+316		+416
GI
PENTASA		127.7		99.5		+28		+4
LIALDA		21.3		-	N/A		N/A
RENAL
FOSRENOL		76.0		26.1		+191		+8
DYNEPO		6.3		-	N/A		N/A
GP
CALCICHEW		39.1		33.2		+18	N/A
CARBATROL		52.7		50.7		+4		-5
REMINYL/REMINYL XL		22.8		15.0		+52	N/A
XAGRID		48.4		39.5		+23	N/A
Other product sales		80.0		83.9		-5
		1,279.3		1,017.4		+26
Human Genetic Therapies
REPLAGAL		105.1		86.5		+22	N/A
ELAPRASE		124.4		4.3	N/A		N/A
		229.5		90.8		+153
Total product sales		1,508.8		1,108.2		+36

The following discussion includes references to prescription and market share data for the Company’s key products.  The source of this data is IMS Health, September 2007.  IMS is a leading global provider of business intelligence for the pharmaceutical and healthcare industries.

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Specialty Pharmaceuticals

ADDERALL XR

US prescriptions for ADDERALL XR increased by 5% for the nine months to September 30, 2007 compared to the same period in 2006 due primarily to 6% growth in the US ADHD market.  During the nine months to September 30, 2007 ADDERALL XR’s average share of the US ADHD market remained constant at 26%.

Sales of ADDERALL XR for the nine months to September 30, 2007 were $753.2 million, an increase of 19% compared to the same period in 2006 (2006: $634.4 million).  Product sales growth was higher than prescription growth due primarily to a price increase in January 2007 and wholesaler stocking.  Shire has also introduced an 8% price increase to ADDERALL XR on October 1, 2007.

As previously disclosed, the United States FTC informed Shire on October 3, 2006 that it was reviewing the ADDERALL XR patent litigation settlement agreement between Shire and Barr.  On June 22, 2007, the Company received a civil investigative demand requesting that it provides information to the FTC relating to its settlement with Barr and its earlier settlement with Impax Laboratories, Inc. The Company is cooperating fully with this investigation and believes that the settlements are in compliance with all applicable laws.

For further information about the litigation proceedings relating to the Company’s ADDERALL XR patents see ITEM 1 of Part II of this Form 10-Q: Legal Proceedings.  Any decrease in the sales of ADDERALL XR would significantly reduce revenues and earnings.

VYVANSE

VYVANSE’s average share of the US ADHD market was 2.4% from the launch of VYVANSE in July 2007 to September 30, 2007 and market share had reached 3.7% by September 30, 2007.  Product sales of $10.6 million for the nine months to September 30, 2007 were net of $20.5 million sales deductions, primarily coupons and stocking discounts, which is expected to trend over time to approximately 28% of product sales before deductions.

Launch stocks of $57.8 million (before sales deductions) were shipped to wholesalers from the launch in June 2007 to September 30, 2007. Sales of launch stocks are being recognized into revenue as prescription demand is confirmed by IMS data.  By September 30, 2007 these launch stocks had decreased to $36.9 million as patients purchased VYVANSE.  Product sales of VYVANSE from launch to September 30, 2007 totaled $10.6 million comprising $20.9 million of sales based on prescription demand, a further $10.2 million of sales from wholesaler restocking, net of sales deductions of $20.5 million.  All initial launch stocks are expected to be recognized into revenue by the end of 2007.

DAYTRANA

DAYTRANA’s average share of the US ADHD market increased to 2.1% in the nine months to September 30, 2007 compared to an average share of 0.4% from the launch in June 2006 to September 30, 2006 contributing to a 416% increase in US prescriptions of DAYTRANA for the period.

Product sales for the nine months to September 30, 2007 were $41.2 million, an increase of 316% compared to product sales of $9.9 million from the launch in June 2006 to September 30, 2006.  Product sales increased at a lower rate than prescriptions due to a provision made for returns following the voluntary market withdrawal of a limited quantity of DAYTRANA patches.

The addition of VYVANSE, combined with ADDERALL XR and DAYTRANA’s market share has helped Shire grow its total share of the US ADHD market to 30% at September 30, 2007 compared to 28% at September 30, 2006 (excluding ADDERALL, which was divested by Shire in Q3 2006).   Shire’s combined ADHD portfolio forms the leading portfolio of products in the US ADHD market.

PENTASA

PENTASA’s average share of the US oral mesalamine prescription market for the nine months to September 30, 2007 remained constant at 17% compared to the same period in 2006.  US prescriptions of PENTASA for the nine months to September 30, 2007 were up 4% compared to the same period in 2006 primarily due to a 4% increase in the US oral mesalamine prescription market.

Sales of PENTASA for the nine months to September 30, 2007 were $127.7 million, an increase of 28% compared to the same period in 2006 (2006: $99.5 million).  Sales growth is higher than prescription growth primarily due to an increasing shift to the 500mg strength capsules as well as the impact of price increases in November 2006 and August 2007.

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LIALDA

Shire launched LIALDA during March 2007.  By September 30, 2007 LIALDA reached a US market share of 6.4%.  Preparations are underway for a European launch, commencing with the UK in Q4 2007.  In the UK and Ireland the product will be called MEZAVANT XL and Shire plans to market the product in most other EU countries as MEZAVANT.

LIALDA’s average share of the US oral mesalamine prescription market was 3% from the launch to September 30, 2007.  LIALDA product sales for nine months to September 30, 2007 were $21.3 million.

Launch stocks of $35.1 million (before sales deductions) were shipped to wholesalers from the launch to September 30, 2007.  Sales of launch stocks are being recognized into revenue as prescription demand is confirmed by IMS data.  By September 30, 2007 these launch stocks had decreased to $14.4 million as patients purchased LIALDA. Product sales of LIALDA from the launch to September 30, 2007 totaled $21.3 million, comprising $20.7 million based on prescription demand, $6.6 million from non retail demand and wholesaler restocking, net of sales deductions of $6.0 million (mainly discounts, wholesaler fees and rebates). All initial launch stocks are expected to be recognized into revenue by the end of 2007.

Since the launch of LIALDA in March 2007, PENTASA and LIALDA’s combined share of the US oral mesalamine prescription market had grown to 23% by September 30, 2007, up from 18% at September 30, 2006.

FOSRENOL

FOSRENOL has now been launched in 23 countries and global sales totaled $76.0 million for the nine months ended September 30, 2007 (2006: $26.1 million).  In Europe, FOSRENOL has been launched in Germany, France, UK, Italy and a number of other countries.  Launches will continue throughout 2008, including Spain, subject to finalization of national marketing authorizations and the conclusion of pricing and reimbursement negotiations.  European product sales of FOSRENOL for the nine months to September 30, 2007 were $28.0 million (2006: $1.7 million).

US sales of FOSRENOL for the nine months to September 30, 2007 were $48.0 million (2006: $24.4 million).  FOSRENOL’s average market share of the US phosphate binder market remained constant at 8%. The increase in US product sales is significantly higher than growth in US retail audit prescription due to the uptake in higher strengths (launched in early 2006), wholesaler de-stocking of initial launch stocks in the nine months to September 30, 2006 and an increased contribution from the non-retail business.

CARBATROL

US prescriptions for CARBATROL for the nine months ending September 30, 2007 were down 5% compared to the same period in 2006.  This was primarily due to a 4% decline in the US extended release carbamazepine prescription market.

Product sales of CARBATROL for the nine months to September 30, 2007 were $52.7 million, an increase of 4% compared to the same period in 2006 (2006: $50.7 million).  Sales increased despite a fall in prescriptions due to a sales price increase in April 2007.

Patent litigation proceedings relating to CARBATROL are ongoing.  For further information on patent litigation proceedings relating to CARBATROL see ITEM 1 of Part II of this Form 10-Q: Legal Proceedings.

XAGRID

Sales for the nine months to September 30, 2007 were $48.4 million, an increase of 23% compared to the same period in 2006 (2006: $39.5 million).  Expressed in transaction currencies (XAGRID is primarily sold in Euros and Pounds sterling), sales increased by 14% due to growth in many of Shire’s markets, with exchange rate movements against the US dollar accounting for the remaining 9% increase.

Human Genetic Therapies

REPLAGAL

Sales for the nine months to September 30, 2007 were $105.1 million (2006: $86.5 million).  Expressed in transaction currencies (REPLAGAL is primarily sold in Euros and Pounds sterling), sales increased by 14% primarily due to higher unit sales in Europe and Canada, with exchange rate movements against the US dollar accounting for the remaining 8% increase.

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ELAPRASE

Sales for the nine months to September 30, 2007 were $124.4 million (2006: $4.3 million).  ELAPRASE was successfully launched in the US in August 2006 and in several major European markets during the first half of 2007.  ELAPRASE is now approved for marketing and commercial distribution in 34 countries worldwide.

Foreign exchange effect

Revenues reported in US dollars include the impact of translating sales made in local currency (primarily Euros and Pounds sterling) into US dollars.  The table below shows the effect of foreign exchange translations on the revenue growth of the key affected products as well as the underlying performance of key products in their local currency:

	9 months to September 30, 2007 sales $M		9 months to September 30, 2007 sales growth in local currency %		9 months to September 30, 2007 sales growth in US dollars %		Impact of translation to US dollars %
XAGRID
- sales in Euros		30.4		+19		+28		+9
- sales in Pounds sterling		18.0		+4		+13		+9
REPLAGAL
- sales in Euros		61.2		+7		+16		+9
- sales in Pounds sterling		18.5		+15		+26		+11
CALCICHEW sales in Pounds sterling		35.2		+8		+18		+10
REMINYL and REMINYL XL sales in Pounds sterling		21.0		+41		+54		+13

Royalties

Royalty revenue increased by 2% to $185.4 million for the nine months to September 30, 2007 (2006: $181.8 million).  The following table provides an analysis of Shire’s royalty income:

	9 months to September 30, 2007		9 months to September 30, 2006		change
	$’M		$’M		%
3TC		111.2		114.3		-3
ZEFFIX		29.6		25.4		+17
Others		44.6		42.1		+6
Total		185.4		181.8		+2

3TC

Royalties from sales of 3TC for the nine months to September 30, 2007 were $111.2 million (2006: $114.3 million), a decrease of 3% compared to the same period in 2006.  The impact of foreign exchange movements has contributed 4% to the reported growth; excluding foreign exchange movements the royalty income has declined 7% compared to the same period in 2006.

Shire receives royalties from GSK on worldwide 3TC sales.  GSK’s worldwide sales of 3TC for the nine months to September 30, 2007 were $834 million, a decrease of 4% compared to the same period in 2006 (2006: $870 million). The nucleoside analogue market for HIV has continued to grow, however competitive pressures within the market have increased, leading to a decline in 3TC sales.

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ZEFFIX

Royalties from sales of ZEFFIX for the nine months to September 30, 2007 were $29.6 million (2006: $25.4 million), an increase of 17% compared to the same period in 2006.  The impact of foreign exchange movements has contributed 8% to the reported growth, excluding foreign exchange movements there has been an increase of 9% compared to the same period in 2006.

Shire receives royalties from GSK on worldwide ZEFFIX sales.  GSK’s worldwide sales of ZEFFIX for the nine months to September 30, 2006 were $254 million, an increase of 15% compared to the same period in 2006 (2006: $220 million). This increase was primarily due to strong growth in the Chinese, Japanese and Korean markets.

Other

Other royalties are primarily in respect of REMINYL and REMINYL ER (known as RAZADYNE and RAZADYNE ER in the US), a product marketed worldwide (excluding the UK and the Republic of Ireland) by Janssen, an affiliate of Johnson & Johnson.  Shire has the exclusive marketing rights in the UK and the Republic of Ireland.

Barr and other companies have filed an ANDA with the FDA for generic versions of RAZADYNE. Janssen and Synaptech have filed lawsuits against some of those ANDA filers.  A trial was held during the week of May 21, 2007.  No decision from the court has been issued to date.

In June 2006 Janssen and Synaptech filed a lawsuit against Barr for infringement of their patent rights relating to RAZADYNE ER as a result of Barr filing an ANDA with the FDA for a generic version of RAZADYNE ER.  In May 2007 Janssen and Synaptech also filed suit against Sandoz as a result of Sandoz filing an ANDA with the FDA.  No court date has been set in either proceedings. 

Cost of product sales

For the nine months to September 30, 2007 the cost of product sales was 14% of product sales (2006: 17%).  The cost of product sales for REPLAGAL in 2006 included a $47.0 million adjustment in respect of inventories acquired through the acquisition of TKT.  This fair value adjustment increased Shire’s cost of product sales as a percentage of product sales for the nine months to September 30, 2006 by 4%.  Excluding the impact of this fair value adjustment in 2006, cost of product sales as a percentage of product sales in the nine months to September 30, 2007 increased by 1% compared to 2006 due to the impact of DAYTRANA inventory written off following the voluntary market withdrawal of a limited amount of DAYTRANA patches, changes in the product sales mix and other inventory write-offs.

For the nine months to September 30, 2007 cost of product sales included a charge of $2.6 million for share based compensation (2006: $2.3 million).

Research and development (R&D)

R&D expenditure increased from $304.0 million in the nine months to September 30, 2006 (27% of product sales) to $363.7 million in the nine months to September 30, 2007 (24% of product sales).  For the nine months to September 30, 2007 R&D included an up-front payment to Renovo of $75.0 million for the in-licensing of JUVISTA (5% of product sales) and a payment to Noven of $5.9 million to acquire the exclusive rights to ATS.  For the nine months to September 30, 2006 R&D included $80.5 million of up-front payments (7% of product sales), comprising a $50.0 million payment to New River (on the filing of the drug approval application with the FDA for VYVANSE), a $25.0 million payment to Duramed (in-licensing of women’s health products) and $5.5 million payment to Warren (in-licensing of the TPC technology).

The remaining increase in R&D expenditure is due to Phase 3(b) and Phase 4 studies to support new product launches; the continuation of Phase 3 trials on GA-GCB; the development of the Women’s Health and New River ADHD franchises; pre-clinical development of three HGT projects; two new Phase 1 projects; and two further pre-clinical projects.

For the nine months to September 30, 2007 R&D included a charge of $8.9 million for share based compensation (2006: $4.2 million).

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Selling, general and administrative (SG&A) expenses

Total SG&A expenses increased from $666.5 million in the nine months to September 30, 2006 to $860.9 million in the nine months to September 30, 2007, an increase of 29%.   As a percentage of product sales, total SG&A expenses were 57% (2006: 60%).

9 months to September 30,	2007 $’M		(1)2006 $’M		Change %
Sales costs		239.5		173.2		+38
Marketing costs		310.6		270.0		+15
Other SG&A costs		203.4		151.0		+35
Depreciation and amortization(2)		107.4		72.3		+49
Total SG&A costs		860.9		666.5		+29

(1) 2006 amounts have been reclassified to conform to the 2007 presentation

(2) Excludes depreciation from manufacturing plants of $3.9 million and amortization of favorable manufacturing contracts of $0.5 million (2006: depreciation of $3.5 million) which is included in cost of product sales.

The increase in total SG&A expenses included the impact of the following:

· Provision for the legal settlement of the TKT class action shareholder suit of $27 million (2% of product sales);

· An increase in the ADHD sales force to promote VYVANSE;

· The cost of the new GI sales force in the US;

· The launches of DYNEPO, LIALDA and VYVANSE; and

· An increase in depreciation and amortization (see below).

For the nine months to September 30, 2007 SG&A included a charge of $22.6 million for share based compensation (2006: $19.3 million), representing 1% of product sales (2006: 2%).

The depreciation charge for the nine months to September 30, 2007 was $43.4 million (2006: $30.7 million).  The increase in depreciation follows investment in Shire’s infrastructure to support the continuing growth of the Company.

The amortization charge for the three months to September 30, 2007 was $64.0 million (2006: $41.6 million).  The increase in amortization is primarily due to the commencement of amortization of capitalized intangibles for DAYTRANA, DYNEPO and VYVANSE following their launches in June 2006, March 2007 and July 2007 respectively.

Integration Costs

For the nine months to September 30, 2007 Shire incurred $1.3 million of costs associated with the integration of the New River business (2006: $3.9 million relating to the TKT acquisition).  New River is now fully integrated and no further integration costs are anticipated.

In-process R&D (IPR&D)

During the nine months to September 30, 2007 Shire expensed the portion of the New River purchase price allocated to IPR&D of $1,896.0 million as required under US GAAP (business combination accounting). This amount represents the value of those acquired development projects which, at the acquisition date, had not been approved by the FDA or other regulatory authorities, specifically VYVANSE indicated for non-pediatric patients in the US ($1,815.2 million) and VYVANSE in RoW ($80.8 million).

On the acquisition date, VYVANSE had only achieved regulatory approval for use in pediatric patients in the US.  On June 29, 2007 Shire submitted a sNDA to the FDA for VYVANSE for the treatment of ADHD in adults in the US.  The PDUFA date for the FDA to issue a formal response to this application is April 28, 2008 and material net cash inflows would be anticipated one to two years after any approval.  At September 30, 2007, management estimated that future R&D costs until regulatory approval for VYVANSE for ADHD in non-pediatric patients in the US are approximately $30 to $40 million.  This estimate can be affected by various factors and is, in part, based on management’s estimate and assumptions.  For these reasons, among others, the actual cash flows may vary from forecast future cash flows.

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On the acquisition date VYVANSE in RoW had not received regulatory approval. Planning is underway for submission of VYVANSE for the RoW; the filing for Canada is in preparation and anticipated in 2008.  The filing in Europe is expected to require clinical studies before submission; those studies are due to start in 2008 with filing anticipated in 2009.  Management estimates that material net cash inflows would be anticipated one to two years after the approval and that future R&D costs until regulatory approval for VYVANSE for ADHD in RoW are approximately $50 to $60 million.  These estimates can be affected by various factors and are, in part, based on management’s estimate and assumptions.  For these reasons, among others, the actual cash flows may vary from forecast future cash flows.

The Company considers that these IPR&D assets have no alternative future use outside their current development projects 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.

Gain on disposal of product rights

For the nine months to September 30, 2007 Shire recognised a gain on the disposal of non-core products of $12.1 million including $7.1 million on the disposal of EQUETRO to Validus.  During the nine months to September 30, 2006 Shire recognised a gain of $63.0 million on the disposal of ADDERALL to Duramed.

Interest income

For the nine months to September 30, 2007 Shire received interest income of $42.7 million (2006: $36.8 million).  Interest income primarily relates to interest received on cash balances.  Interest income for the nine months to September 30, 2007 is significantly higher than for the nine months ending September 30, 2006 due to increases in US dollar interest rates and higher average cash balances during 2007 compared to 2006.

Interest expense

For the nine months to September 30, 2007 the Company incurred interest expense of $53.8 million (2006: $19.1 million).  The increase in interest expense follows the acquisition of New River which was partly funded by $1.3 billion of term loans, utilized under the $2.3 billion banking facility.  These term loans were subsequently partially repaid using the proceeds from Shire’s $1.1 billion 2.75% convertible bond issued in May 2007.  The remaining $200 million of the term loans was also repaid during June 2007.  Interest expense for the nine months to September 30, 2007 includes a $7.9 million write-off of deferred financing costs following the repayment of these term loans.

In the nine months to September 30, 2007 and 2006 part of the interest expense relates to a provision for interest, which may be awarded by the Court in respect of amounts due to those ex-TKT shareholders who have requested appraisal of the acquisition consideration payable for their TKT shares.  The original trial date for the appraisal rights litigation was set for April 23, 2007, but this trial date has since been deferred, and is scheduled for May 2008.  Further information can be found in ITEM 1 of Part II of this Form 10-Q: Legal Proceedings.

Equity in earnings of equity method investees

Net earnings of equity method investees of $1.7 million were recorded for the nine months to September 30, 2007 (2006: $5.5 million).  This comprised earnings of $4.8 million from the 50% share of the anti-viral commercialization partnership with GSK in Canada (2006: $4.8 million), offset by losses of $3.1 million being the Company’s share of losses in the GeneChem, AgeChem and EGS Healthcare Funds (2006: earnings of $0.7 million).

Taxation

The effective rate of tax for the nine months to September 30, 2007 was -3% (2006: 28%).  The negative tax rate was primarily due to the IPR&D charge of $1,896.0, which is not tax deductible, a higher than forecast level of tax deductible expenditure in that quarter in high-tax territories (principally the US) and reductions in specific tax liabilities relating to tax reviews and tax filings, all of which were finalized in the third quarter.

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.

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.

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Liquidity and capital resources

General

The Company’s funding requirements depend on a number of factors, including its development programs; corporate, business and product acquisitions; the level of resources required for the expansion of marketing capabilities as the product base expands; increases in accounts receivable and inventory which may arise as sales levels increase; competitive and technological developments; the timing and cost of obtaining required regulatory approvals for new products; the timing and quantum of milestone and other payments in respect of in-licensed products, the timing and quantum of tax and dividend payments and the level of cash generated from sales of Shire’s key products.

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 to fund any litigation expenses incurred.

The Company ordinarily finances its activities through cash generated from operating activities, private and public offerings of equity and debt securities and the proceeds of asset or investment disposals.

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).

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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).

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New River 3.5% Convertibles 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 date and May 17, 2007 and were settled at a value of $279.4 million which equates to the fair value of the Notes.

Equity financing

On February 20, 2007 Shire plc raised $877.3 million (net of associated issue costs) through the private placement of 42.9 million new ordinary shares to certain institutional investors at a price of 1075 pence per share. The newly issued shares represented approximately 8.4 per cent of Shire plc's issued ordinary share capital prior to the placing.

New River financing

On April 19, 2007 Shire completed the acquisition of New River.  The total cost of the acquisition of approximately $2.6 billion was funded by: net proceeds of $877.3 million from the private placement, utilization of Term Loan A of $1,000 million and Term Loan B of $300 million, with the balance coming from Shire’s pre-acquisition cash resources.  Term Loan A and Term Loan B have subsequently been repaid from the issue proceeds of Shire plc's 2.75% convertible bonds ($1,100 million) and Shire's own cash resources ($200 million).

Following Shire's acquisition of New River and the issue of the Bonds, the Company's liquidity profile has changed significantly.  However, Shire anticipates that its operating cash flow together with available cash and cash equivalents and the above mentioned RCF facility will be sufficient to meet its anticipated future operating expenses, the remaining costs associated with the acquisition of TKT, capital expenditures and debt service and lease obligations as they become due over the next twelve months.

If the Company decides to acquire other businesses, it expects to fund these acquisitions from existing cash resources, the RCF discussed above and possibly through new borrowings and the issue of new equity, if necessary.

Sources and uses of cash

The following table provides an analysis of the Company’s gross and net (debt)/cash funds (excluding restricted cash), as at September 30, 2007 and September 30, 2006:

	September 30, 2007 $’M			December 31, 2006 $’M
Cash and cash equivalents		562.9			1,126.9
Convertible debt		(1,100.0	)		-
Capital lease obligation		(32.7	)		-
Total debt		(1,132.7	)		1,126.9
Net (debt)/cash funds		(569.8	)		1,126.9

Cash flow activity

Net cash provided by operating activities for the nine months to September 30, 2007 was $408.1 million resulting from a net loss of $1,663.9 million, non-cash items not affecting 2007 operating cash flows of $2,002.9 million and a reduction in working capital of $69.1 million. The reduction in working capital is due to increases in accounts and notes payable and other liabilities of $103.8 million (mainly income taxes payable, sales deduction accruals of $19.3 million and deferred revenue of $45.6 million partially offset by increases in accounts receivable of $64.2 million and inventory of $46.2 million. Increases in accounts receivable, inventory, deferred revenue and sales deduction accruals follow the launch of new products, such as VYVANSE, LIALDA and DYNEPO together with higher sales in the third quarter of 2007 compared to the fourth quarter of 2006.

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Net cash provided by operating activities for the nine months to September 30, 2006 was $342.9 million resulting from net income of $209.6 million, non-cash items not affecting 2006 operating cash flows of negative $0.5 million and a reduction in working capital of $133.8 million.  The decrease in working capital resulted from a net tax repayment of $23.7 million and the timing of working capital payments.

Net cash used in investing activities of $2,625.7 million in the nine months to September 30, 2007, includes expenditure on the acquisition of New River of $2,458.6 million and associated acquisition expenses of $60.4 million; purchases of long term investments of $56.7 million (which includes expenditure of $50 million on an equity investment in Renovo); purchases of property, plant and equipment of $62.1 million and purchases of intangible assets of $58.2 million; which were partially offset by $24.3 million received as proceeds/deposits for the sale of certain product rights and $55.8 million received on maturity of New River’s short term investments.

Capital expenditure on property, plant and equipment included $18.7 million on IT at the Wayne, Pennsylvania, US headquarters and $9.5 million on IT at the Basingstoke, UK Head Office; $6.6 million on construction work at Shire’s manufacturing facility at Owings Mills, Maryland; and $4.7 million on leasehold improvements, $5.9 million on laboratory equipment and $7.1 million on IT equipment at Shire HGT in Cambridge, Massachusetts.  Capital expenditure on intangible assets includes two sales milestones, totaling $50 million, paid to Noven for DAYTRANA, of which $25 million was accrued at December 31, 2006.

Net cash provided by investing activities was $8.3 million in the nine months to September 30, 2006.  The proceeds of $70.6 million from the repayment of loans made to IDB and receipt of $63.0 million in relation to the sale of ADDERALL were offset by capital expenditure on property, plant and equipment of $71.2 million and on intangibles of $52.8 million, which mainly relates to $50.0 million paid to Noven on approval of DAYTRANA.

Capital expenditure on property, plant and equipment included $25.1 million on IT projects at the Wayne, Pennsylvania US headquarters; $7.8 million on building improvements and $8.9 million on IT projects at the Basingstoke, UK headquarters; $9.9 million of construction work at Shire US Manufacturing Inc. in Owings Mills, Maryland; and $15.1 million on leasehold improvements, IT and equipment at Shire HGT in Cambridge, Massachusetts.

Net cash provided by financing activities was $1,647.6 million for the nine months to September 30, 2007.  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, which, as described above, have subsequently been repaid in the period. Shire incurred $14.5 million of arrangement costs in respect of these facilities in the nine months to September 30, 2007.   In May 2007 Shire issued $1.1 billion principal amount of 2.75% convertible bonds due 2014. The net proceeds of the issue of the Bonds were $1.1 billion with associated issue costs of $18.3 million.  On February 20, 2007 Shire plc raised $877.3 million, net of associated costs, through the private placement of 42.9 million new ordinary shares to certain institutional investors at a price of 1075 pence per share.  In addition, Shire plc received $13.0 million from the exercise of warrants and $25.6 million from the exercise of stock options, made payments to acquire treasury stock of $168.5 million and paid a dividend of $29.4 million.  Shire also paid $279.4 million to holders of New River’s 3.5% Convertible Subordinated Notes due 2013 and received $141.8 million from Merrill Lynch in settlement of a purchased call option entered into by New River prior to the acquisition in April 2007.

Net cash used in financing activities was $57.7million for the nine months to September 30, 2006.  This was primarily due to the dividend payment of $22.6million and purchases of treasury stock of $68.3 million being offset by the proceeds of $33.3million from the exercise of employee stock options.

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Obligations and commitments

Aggregate Contractual Obligations

As at September 30, 2007, the Company’s cash requirements for contractual obligations and long-term liabilities reflected on the Balance Sheet were as follows:

	Payments due by period
	Total $’M		Less than 1 year $’M		1 – 3 years $’M		3 – 5 years $’M		More than 5 years $’M
Long-term debt(i)		1,311.8		30.3		60.5		90.8		1,130.2
Capital lease obligations(ii)		46.8		1.4		5.2		8.1		32.1
Operating leases obligations(iii)		216.5		34.9		62.3		57.8		61.5
Purchase obligations (iv)		184.0		86.0		86.3		11.7		-
Other long-term liabilities reflected on the Balance Sheet (v)		863.0		515.7		347.3		-		-
Total		2,622.1		668.3		561.6		168.4		1,223.8

(i) Shire’s $1,100 million principal amount of 2.75% convertible bonds due 2014 issued in May 2007 and the interest on the convertible bonds has been included based on the contractual payment dates.  The principal amount of $1,100 million has been included within payments due in more than 5 years based on the Final Maturity Date of the convertible bonds.  The bondholders have the option to redeem the convertible bonds at the principal amount in May 2012 and the Company has the option to call the bonds subject to certain conditions after May 2012.  Further details are included above.

(ii) The Company has entered into a capital lease for certain laboratory and office space for its HGT business unit in Massachusetts expiring in 2023.  For further information see Note 15, “Capital lease obligations” in our notes to the condensed consolidated financial statements listed under Item 1 of Part I of this Quarterly Report on Form 10-Q.

(iii) The Company leases certain land, facilities, motor vehicles and certain equipment under operating leases expiring through 2025.

(iv) Purchase obligations include agreements to purchase goods, investments or services (including clinical trials, contract manufacturing and capital equipment) that are enforceable and legally binding and that specify all significant terms, including open purchase orders.  Shire expects to fund these commitments with cash flows from operations.

(v) The liability to dissenting shareholders is included within the payments due in less than one year. As at September 30, 2007 the Company recorded a liability of $419.9 million based on the merger consideration of $37 per share for the 11.3 million shares outstanding at that time plus a provision for interest of $53.1million that may be awarded by the Court.  For every $1 increase/decrease in the merger consideration applicable to those TKT shareholders who have asserted appraisal rights, the total estimated purchase price would increase/decrease by approximately $11.3 million.  For further information see ITEM 1 of Part II of this Form 10-Q: Legal Proceedings.

The contractual obligations table above does not include payments yet to fall due upon the occurrence of certain milestones and other contractual commitments. The most significant payments are as follows:

(i) JUVISTA

On June 19, 2007 Shire signed an agreement with Renovo to develop and commercialize JUVISTA, Renovo’s novel drug candidate in late Phase 2 development.  JUVISTA is being studied for the prevention and reduction of scarring in connection with both cosmetic and therapeutic surgery. Under the terms of the agreement Shire has the exclusive right to commercialize JUVISTA worldwide, with the exception of EU member states.

Following the expiration of the HSR waiting period on August 10, 2007, Shire paid Renovo $75 million (expensed as R&D during the nine months to September 30, 2007) and made an equity investment in Renovo of $50 million (at a subscription price of £2 per share, representing 6.5% of Renovo’s share capital immediately after the issue).  In addition, Shire will pay Renovo $25 million on the filing of JUVISTA with the FDA;

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up to $150 million on FDA approval; royalties on net sales of JUVISTA; and up to $525 million on the achievement of very significant sales targets.

Shire will bear the cost of clinical trials designed specifically for obtaining US regulatory approval.  Renovo will bear the costs of clinical trials designed specifically for obtaining EU regulatory approval.  Shire and Renovo will share equally the costs of conducting global clinical trials that are designed for obtaining both US and EU regulatory approvals.

(ii) DAYTRANA

In connection with the Company’s acquisition in 2003 from Noven of the worldwide sales and marketing rights to DAYTRANA, Shire has an obligation to pay Noven $25 million, contingent on future sales performance.

(iii) Women’s Health Products

In September 2006, Shire and Duramed entered into an agreement related to SEASONIQUE, a number of products using Duramed’s transvaginal ring technology and other oral products.  Shire has the right to market these products in a number of markets outside of North America, including the larger European markets.

Under this agreement, Shire will reimburse Duramed for US development expenses incurred going forward up to a maximum of $140 million over eight years from September 2006.  US development expenditure reimbursement for the nine months ended September 30, 2007 totaled $11.9 million.  At September 30, 2007 the maximum future reimbursement for Duramed incurred US development expenditure was $125.6 million.  Shire is separately responsible for development costs in its licensed territories.

(iv) Tissue Protective Cytokine (“TPC”) development rights

In connection with the Company’s licence of TPC rights in non-nervous system indications from Warren, the Company is committed to making payments on achievement of certain milestones.  The Company is not required to make any payments to Warren upon regulatory approval of the first product for the first indication.  However, it is obligated to make milestone payments to Warren of $25 million upon regulatory approval in each of up to five subsequent major indications. 

(v) Other R&D and sales milestones

In addition to the commitments set out in (i) to (iv), at September 30, 2007 the Company had commitments payable on achievement of specified milestones and fees payable for products under development in-licensed from third parties of $73.3 million (December 31, 2006: $75.6 million), of which $1.5 million could be paid in the remainder of 2007.

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Critical Accounting Estimates

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 IPR&D, the valuation of equity investments, sales deductions, income taxes and share-based payments and the amount payable to former holders of TKT common stock of approximately 11.3 million shares 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.

Critical accounting estimates are discussed in Shire’s Annual Report on Form 10-K for the year to December 31, 2006.  Material updates to those estimates discussed in Shire’s Annual Report on Form 10-K are described below.

Income taxes

In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” with effect from January 1, 2007.  In the application of FIN 48, management is required to develop estimates as to whether a tax benefit should be recognized in the financial statements, based on whether it is more likely than not that the technical merits of the position will be sustained based 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 to be realized based on a cumulative probability assessment of the possible outcomes.  In applying FIN 48, management is required to make judgements in the determination of the unit of account, the evaluation of the facts, circumstances and information in respect of the tax position taken, together with the estimates of amounts that the Company may be required to pay in ultimate settlement with the tax authority.

Shire operates in numerous countries where its income tax returns are subject to audit and adjustment by local tax authorities. Because Shire operates globally, the nature of the uncertain tax positions is often very complex and subject to change and the amounts at issue can be substantial.   Shire develops its cumulative probability assessment of the measurement of uncertain tax positions using internal expertise, experience, judgment and assistance from professional advisors.  Estimates are refined as additional information becomes known.  Any outcome upon settlement that differs from Shire’s best estimate may result in additional or lower tax expense in future periods.

At January 1, 2007 the Company had recognized a liability of $234.4 million for total unrecognized tax benefits and had accrued $41.3 million for the payment of interest and penalties. At September 30, 2007 the Company has recognized a liability of $279.4 million for total unrecognized tax benefits and had accrued $63.7 million for the payment of interest and penalties.

The Company has significant deferred tax assets due to net operating losses (NOLs) in the United States, UK and other countries. The realization of these assets is not assured and is dependent on the generation of sufficient taxable income in the future. Management has exercised judgment in determining the extent of the realization of these losses based upon estimates of future taxable income in the various jurisdictions in which these NOLs exist. Where there is an expectation that on the balance of probabilities there will not be sufficient taxable profits to utilize these NOLs a valuation allowance is held against these deferred tax assets. If actual events differ from management’s estimates, or to the extent that these estimates are adjusted in the future, any changes to the valuation allowance could materially impact the Company’s financial position and results.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In May 2007, in connection with the New River acquisition, Shire issued an aggregate of $1,100 million of 2.75% convertible bonds due 2014.  The financial risk profile of the Company has changed due to the issue of the convertible bonds, which are subject to a fixed interest rate of 2.75%.

The Company continues to review its interest rate risk and assess the policies in place to manage the risk. No derivative instruments have been entered into to manage interest rates at November 2, 2007.

Item 7A of the Group’s Annual Report on Form 10-K for the year ended December 31, 2006 contains a detailed discussion of the Group’s market risk exposure.  There have been no material changes in the Group’s exposure to market risk, with the exception of interest rate risk, since December 31, 2006.

ITEM 4.  CONTROLS AND PROCEDURES

As at September 30, 2007, the Company, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, had performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures.  The Company’s management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature can provide only reasonable assurance regarding management’s control objectives. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective at the reasonable level of assurance to ensure that the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934 is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.

There has been no change in the Company’s internal control over financial reporting that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information required by this Item is incorporated herein by reference to Note 18(d), “Commitments and Contingencies, Legal proceedings” in our notes to the condensed consolidated financial statements listed under Item 1 of Part I of this Quarterly Report on Form 10-Q.

ITEM 1A.  RISK FACTORS

The key risk factors associated with the Company are set forth in the Company’s Form 10-K for the year ended December 31, 2006.  Material updates to these risk factors are included below:

The Company has recently completed the acquisition of New River. The benefits of this acquisition depend on the successful transition to the Company of the development of New River’s approved and pre-approval compounds. If this transition is not successful, it may result in the products failing to deliver the anticipated benefits and could cause a diversion of management’s time and resources.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibits

3.1 Articles of Association of Shire plc as adopted by special resolution on September 19, 2005.⁽¹⁾

31.1 Certification of Matthew Emmens pursuant to Rule 13a – 14 under The Exchange Act.

31.2 Certification of Angus Russell pursuant to Rule 13a – 14 under The Exchange Act.

32.1 Certification of Matthew Emmens and Angus Russell pursuant to Section 906 of the Sarbanes – Oxley Act of 2002.

(1) Incorporated by reference to Exhibit 3.1 to Shire’s Form 8-K filed on November 25, 2005.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SHIRE PLC
	(Registrant)
Date:  November 2, 2007	By:	/s/ Matthew Emmens               Matthew Emmens Chief Executive Officer
Date:  November 2, 2007	By:	/s/ Angus Russell                     Angus Russell Chief Financial Officer

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF MATTHEW EMMENS PURSUANT TO

RULE 13A-14 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

FORM 10-Q FOR THE QUARTER ENDED

SEPTEMBER 30, 2007 OF

SHIRE PLC

I, Matthew Emmens, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of Shire plc;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d - 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d - 15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  November 2, 2007

/s/ Matthew Emmens

Matthew Emmens

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF ANGUS RUSSELL PURSUANT TO

RULE 13A-14 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

FORM 10-Q FOR THE QUARTER ENDED

SEPTEMBER 30, 2007 OF

SHIRE PLC

I, Angus Russell certify, that:

1.           I have reviewed this quarterly report on Form 10-Q of Shire plc;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d - 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d - 15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 2, 2007

/s/ Angus Russell

Angus Russell

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

The certification set forth below is being submitted in connection with the Quarterly Report on Form 10-Q of Shire plc for the quarter ended September 30, 2007 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Matthew Emmens, the Chief Executive Officer and Angus Russell, the Chief Financial Officer of Shire plc, each certifies that, to the best of his knowledge:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Shire plc.

Date: November 2, 2007

/s/ Matthew Emmens

Matthew Emmens

Chief Executive Officer

/s/ Angus Russell

Angus Russell

Chief Financial Officer