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Commitments and Contingencies
 3 Months Ended
Mar. 31, 2013
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Disclosure

12.       Commitments and contingencies

 

(a)       Leases

 

Future minimum lease payments under operating leases at March 31, 2013 are presented below:

  Operating
  leases
  $’M
  _____________
2013 31.5
2014 36.6
2015 29.4
2016 21.2
2017 17.7
2018 12.2
Thereafter 83.4
  _____________
  232.0
  _____________

The Company leases land, facilities, motor vehicles and certain equipment under operating leases expiring through 2032. Lease and rental expense amounted to $17.8 million and $12.8 million for the three months to March 31, 2013 and 2012 respectively, which is predominately included in SG&A expenses in the Company's consolidated income statement.

 

(b)       Letters of credit and guarantees

 

At March 31, 2013 the Company had irrevocable standby letters of credit and guarantees with various banks and insurance companies totaling $42.6 million, providing security for the Company's performance of various obligations. These obligations are primarily in respect of the recoverability of insurance claims, lease obligations and supply commitments.

 

(c)       Collaborative arrangements

 

Details of significant updates in collaborative arrangements are included below:

 

In-licensing arrangements

 

Collaboration with Acceleron Pharma Inc. (“Acceleron”) for activin receptor type IIB class of molecules

 

In April 2013, following the results of toxicology studies, Shire discontinued development of HGT4510 and returned Shire's rights in the asset to Acceleron. The development of HGT4510 was placed on clinical hold in February 2011, subject to the completion of the toxicology studies.

 

Out-licensing arrangements

 

Shire has entered into various collaborative arrangements under which the Company has out-licensed certain product or intellectual property rights for consideration such as up-front payments, development milestones, sales milestones and/or royalty payments. In some of these arrangements Shire and the licensee are both actively involved in the development and commercialization of the licensed product and have exposure to risks and rewards dependent on its commercial success. Under the terms of these arrangements, the Company may receive development milestone payments up to an aggregate amount of $39.0 million and sales milestones up to an aggregate amount of $67.0 million. The receipt of these substantive milestones is uncertain and contingent on the achievement of certain development milestones or the achievement of a specified level of annual net sales by the licensee. In the three months to March 31, 2013 Shire received up-front and milestone payments totaling $nil (2012: $6.0 million). In the three months to March 31, 2013 Shire recognized milestone income of $0.5 million (2012: $5.5 million) in other revenues and $14.5 million (2012: $19.1 million) in product sales for shipment of product to the relevant licensee.

 

 

(d)       Commitments

 

 

(i)       Clinical testing

 

At March 31, 2013 the Company had committed to pay approximately $451.7 million (December 31, 2012: $424.7 million) to contract vendors for administering and executing clinical trials. The timing of these payments is dependent upon actual services performed by the organizations as determined by patient enrollment levels and related activities.

 

(ii)       Contract manufacturing

 

At March 31, 2013 the Company had committed to pay approximately $101.3 million (December 31, 2012: $125.2 million) in respect of contract manufacturing. The Company expects to pay all of these commitments in 2013.

 

(iii)       Other purchasing commitments

 

At March 31, 2013 the Company had committed to pay approximately $136.5 million (December 31, 2012: $144.7 million) for future purchases of goods and services, predominantly relating to active pharmaceutical ingredients sourcing. The Company expects to pay $133.6 million of these commitments in 2013.

 

(iv)       Investment commitments

 

At March 31, 2013 the Company had outstanding commitments to subscribe for interests in companies and partnerships for amounts totaling $12.5 million (December 31, 2012: $15.2 million) which may all be payable in 2013, depending on the timing of capital calls.

 

(v)       Capital commitments

 

At March 31, 2013 the Company had committed to spend $142.5 million (December 31, 2012: $97.0 million) on capital projects.

 

(e)       Legal and other proceedings

 

The Company expenses legal costs as they are incurred.

 

The Company recognizes loss contingency provisions for probable losses when management is able to reasonably estimate the loss. When the estimated loss lies within a range, the Company records a loss contingency provision based on its best estimate of the probable loss. If no particular amount within that range is a better estimate than any other amount, the minimum amount is recorded.  Estimates of losses are often developed substantially before the ultimate loss is known, and are therefore refined each accounting period as additional information becomes known. In instances where the Company is unable to develop a reasonable estimate of loss, no loss contingency provision is recorded at that time. As information becomes known a loss contingency provision is recorded when a reasonable estimate can be made. The estimates are reviewed quarterly and the estimates are changed when expectations are revised. An outcome that deviates from the Company's estimate may result in an additional expense or release in a future accounting period. At March 31, 2013 provisions for litigation losses, insurance claims and other disputes totaled $80.3 million (December 31, 2012: $130.5 million).

 

The Company's principal pending legal and other proceedings are disclosed below. The outcomes of these proceedings are not always predictable and can be affected by various factors. For those legal and other proceedings for which it is considered at least reasonably possible that a loss has been incurred, the Company discloses the possible loss or range of possible loss in excess of the recorded loss contingency provision, if any, where such excess is both material and estimable.

 

VYVANSE

In May and June 2011, Shire was notified that six separate Abbreviated New Drug Applications ("ANDAs") were submitted under the Hatch-Waxman Act seeking permission to market generic versions of all approved strengths of VYVANSE. The notices were from Sandoz, Inc. ("Sandoz"); Amneal Pharmaceuticals LLC ("Amneal"); Watson Laboratories, Inc.; Roxane Laboratories, Inc. ("Roxane"); Mylan Pharmaceuticals, Inc.; and Actavis Elizabeth LLC and Actavis Inc. (collectively, "Actavis"). Within the requisite 45 day period, Shire filed lawsuits for infringement of certain of Shire's VYVANSE patents in the US District Court for the District of New Jersey against each of Sandoz, Roxane, Amneal and Actavis; in the US District Court for the Central District of California against Watson Laboratories, Inc.; and in the US District Court for the Eastern District of New York against Mylan Pharmaceuticals, Inc. and Mylan Inc. (collectively "Mylan"). On December 9, 2011, the District Court of New Jersey consolidated the Sandoz, Roxane, Amneal and Actavis cases. On January 5, 2012, the Watson case was transferred to the District Court of New Jersey, but not consolidated with the other cases. The filing of the lawsuits triggered a stay of approval of all six ANDAs for up to 30 months from the expiration of the new chemical entity exclusivity, which will expire on August 23, 2014. In December 2011 and February 2012, Shire received additional notifications that Mylan had filed further certifications challenging other VYVANSE patents listed in the Orange Book. Within the requisite 45 day period, Shire filed a new lawsuit against Mylan, Johnson Matthey Pharmaceutical Materials and Johnson Matthey Inc. in New Jersey. In December 2012, the parties completed a Markman briefing. No date for the Markman hearing has been set, nor has any ruling been rendered. No trial dates have been set. In February 2013, Shire withdrew its lawsuit against Watson following Watson's withdrawal of its ANDA.

INTUNIV

In March and April 2010, Shire was notified that three separate ANDAs were submitted under the Hatch-Waxman Act seeking permission to market generic versions of all approved strengths of INTUNIV. The notices were from Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries Ltd. (collectively, “Teva”); Actavis; and Anchen Pharmaceuticals, Inc. and Anchen, Inc. (collectively, "Anchen"). Within the requisite 45 day period, Shire filed lawsuits in the US District Court for the District of Delaware against each of Teva, Actavis and Anchen for infringement of certain of Shire's INTUNIV patents. The filing of the lawsuits triggered a stay of approval of these ANDAs for up to 30 months. These lawsuits have been consolidated. A Markman hearing was held on February 14, 2012, and a written Markman decision was given by the court on March 22, 2012. The Anchen lawsuit was settled in September 2012. This settlement provides TWi Pharmaceuticals, Inc. (“TWi”), the acquirer of Anchen's ANDA, with a license to make, and Anchen a license to market, TWi's generic versions of INTUNIV in the United States 181 days after Actavis's launch of generic INTUNIV, or earlier in certain circumstances.  Such sales will require the payment of a royalty to Shire, except in certain circumstances.  Also as part of the settlement, under certain circumstances Shire may authorize Anchen to sell authorized generic versions of INTUNIV supplied by Shire, on which Shire will receive a significant royalty.  A bench trial against Actavis and Teva was held from September 17, 2012 through September 20, 2012. A decision has not yet been given. The lawsuit against Actavis was settled in April 2013. This settlement provides Actavis with a license to make and market Actavis's generic versions of INTUNIV in the United States on December 1, 2014, or earlier in certain circumstances.  Such sales will require the payment of a royalty of 25% of gross profits to Shire during the 180 day period of Actavis' exclusivity.

In October 2010, Shire was notified that two separate ANDAs were submitted under the Hatch-Waxman Act seeking permission to market generic versions of the 4mg strength of INTUNIV. The notices were from Watson Pharmaceuticals, Inc. and from Impax Laboratories, Inc. (“Impax”). Shire was subsequently advised that Impax amended its ANDA to include the 1mg, 2mg and 3mg strengths of INTUNIV. Within the requisite 45 day period, Shire filed a lawsuit in the US District Court for the Northern District of California against each of Watson Pharmaceuticals, Inc., Watson Laboratories, Inc.-Florida, Watson Pharma, Inc., ANDA, Inc. (collectively “Watson”) and Impax for infringement of certain of Shire's INTUNIV patents. The filing of the lawsuit triggered a stay of approval of these ANDAs for up to 30 months. A Markman hearing was held on May 30, 2012, and a written Markman decision was given by the court on June 1, 2012. A trial is scheduled to begin on February 10, 2014. The lawsuit against Watson was settled in April 2013. This settlement provides Watson with a license to make and market Watson's generic versions of INTUNIV in the United States, 181 days after Actavis's launch of generic INTUNIV, or earlier in certain circumstances.

In February 2011, Shire was notified that Mylan Pharmaceuticals, Inc. submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of the 4mg strength of INTUNIV. Within the requisite 45 day period, Shire filed a lawsuit in the US District Court for the Southern District of New York against Mylan for infringement of certain of Shire's INTUNIV patents. In April 2011, Shire filed a lawsuit against Mylan in the US District Court for the District of West Virginia for infringement of certain of Shire's INTUNIV patents and dismissed the lawsuit in the Southern District of New York. Shire was subsequently advised that Mylan amended its ANDA to include the 1mg, 2mg and 3mg strengths of INTUNIV. Within the requisite 45 day period, Shire filed another lawsuit against Mylan in the US District Court for the District of West Virginia. The Mylan lawsuit was settled in March 2013. This settlement provides Mylan with a license to make and market Mylan's generic versions of INTUNIV in the United States 181 days after Actavis's launch of generic INTUNIV, or earlier in certain circumstances.  Such sales will require the payment of a royalty to Shire, except in certain circumstances.

In March 2011, Shire was notified that Sandoz had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of the 4mg strength of INTUNIV. Within the requisite 45 day period, Shire filed a lawsuit in the US District Court for the District of Colorado against Sandoz for infringement of certain of Shire's INTUNIV patents. The filing of the lawsuit triggered a stay of approval of this ANDA for up to 30 months. Shire was subsequently advised that Sandoz amended its ANDA to include the 1mg, 2mg and 3mg strengths of INTUNIV. Within the requisite 45 day period, Shire filed another lawsuit against Sandoz in the US District Court for the District of Colorado. The filing of the lawsuit triggered a stay of approval of the 1mg, 2mg and 3mg strengths for up to 30 months. The Sandoz lawsuit was settled in April 2013. This settlement provides Sandoz with a license to make and market Sandoz's generic versions of INTUNIV in the United States 181 days after Actavis' launch of generic INTUNIV, or earlier in certain circumstances.  Such sales will require the payment of a royalty to Shire, except in certain circumstances.

On March 22, 2012, US Patent No. 5,854,290, one of the patents-in-suit in all the INTUNIV litigations referenced above was dedicated to the public by the inventors. Two other patents relating to formulations of guanfacine remain in each of the lawsuits regarding INTUNIV. Those two patents expire on December 20, 2020 and July 4, 2022.

FOSRENOL

In February 2009 Shire was notified that three separate ANDAs were submitted under the Hatch-Waxman Act seeking permission to market generic versions of all approved strengths of FOSRENOL. The notices were received from Barr Laboratories, Inc. (“Barr”); Mylan, Inc., Mylan Pharmaceuticals, Inc. and Matrix Laboratories, Inc. (collectively, “Mylan-Matrix”); and Natco Pharma Limited (“Natco”). In December 2010, Shire was notified that Alkem Laboratories Ltd. (“Alkem”) submitted an ANDA under the Hatch-Waxman Act seeking permission to market generic versions of all approved strengths of FOSRENOL. Within the requisite 45 day period, Shire filed lawsuits in the US District Court for the Southern District of New York against each of Barr, Mylan-Matrix and Natco and in both the US District Court for the Southern District of New York and the US District Court for the Northern District of Illinois against Alkem for infringement of certain of Shire's FOSRENOL patents.  In April 2011, Shire and Barr reached a settlement which provides Barr with a license to market its own generic version of FOSRENOL in the US but only after October 1, 2021, or earlier under certain circumstances. No payments to Barr are involved with the settlement. As a result of the settlement, the lawsuit against Barr was subsequently dismissed. The lawsuits against both Mylan-Matrix and Alkem have been dismissed, and consequently, each of Mylan-Matrix and Alkem may enter the market upon US Food and Drug Administration (“FDA”) approval of their respective versions of generic FOSRENOL.  In April 2012 the 30 month stay of approval with respect to Natco expired. In April 2013 Shire dismissed its lawsuit against Natco, and consequently Natco may enter the market upon FDA approval of its version of generic FOSRENOL.

In January 2013 Shire was notified that Mylan Pharmaceuticals ULC. had submitted an abbreviated new drug submission seeking permission to market generic versions of all approved strengths of FOSRENOL in Canada. In March 2013, Shire commenced proceedings under the Canadian Patented Medicines (Notice of Compliance) Regulations. A stay of approval of up to 24 months has been imposed by Health Canada on Mylan Pharmaceuticals ULC's submission.

 

LIALDA

 

In May 2010 Shire was notified that Zydus Pharmaceuticals USA, Inc. (“Zydus”) had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Within the requisite 45 day period, Shire filed a lawsuit in the US District Court for the District of Delaware against Zydus and Cadila Healthcare Limited, doing business as Zydus Cadila. As of February 22, 2013, the case has been administratively closed. No further activity will take place until after one of the parties files a motion to reopen the case.

In February 2012, Shire was notified that Osmotica Pharmaceutical Corporation ("Osmotica") had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA.  Within the requisite 45 day period, Shire filed a lawsuit in the US District Court for the Northern District of Georgia against Osmotica. The filing of the lawsuit triggered a stay of approval of the ANDA for up to 30 months. The court has appointed a special master to assist with a Markman hearing and to preside over any discovery pursuits. No Markman hearing date has been set. No trial date has been set.

In March 2012, Shire was notified that Watson Laboratories Inc.-Florida had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Within the requisite 45 day period, Shire filed a lawsuit in the US District Court for the Southern District of Florida against Watson Laboratories Inc.-Florida and Watson Pharmaceuticals, Inc. The filing of the lawsuit triggered a stay of approval of the ANDA for up to 30 months. In August 2012, Shire filed an amended complaint adding Watson Pharma, Inc. and Watson Laboratories, Inc. as defendants. A Markman hearing was held on December 20, 2012 and a written Markman decision was given by the court on January 17, 2013. A trial took place on April 8, 2013 through April 12, 2013. Closing arguments took place on April 26, 2013. No decision has been rendered.

In April 2012, Shire was notified that Mylan Pharmaceuticals, Inc. had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Within the requisite 45 day period, Shire filed a lawsuit in the US District Court for the Middle District of Florida against Mylan. The filing of the lawsuit triggered a stay of approval of the ANDA for up to 30 months. No date for a Markman hearing has been set. A trial is scheduled to begin on June 2, 2014.

ADDERALL XR

On November 1, 2010 Impax filed suit against Shire in the US District Court for the Southern District of New York claiming that Shire was in breach of its supply contract for the authorized generic version of ADDERALL XR. Shire's ability to supply this product is limited by quota restrictions that the US Drug Enforcement Administration places on amphetamine, which is the product's active ingredient. Impax sought specific performance, equitable relief and damages. Shire filed a counterclaim against Impax seeking damages and a declaratory judgment that Shire had satisfied its obligations under the supply contract. On February 7, 2013 Shire and Impax settled this dispute and agreed to discontinue all court and related proceedings. Under the terms of the settlement Shire made a one-time cash payment to Impax of $48.0 million in the first quarter of 2013. Also as part of the settlement, the parties have entered into an amended supply agreement which will govern the supply of authorized generic ADDERALL XR from Shire to Impax until the end of the supply term on September 30, 2014.

In February 2011, Shire was notified that Watson Laboratories, Inc.-Florida had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of all approved strengths of ADDERALL XR. This new ANDA is not covered under the existing settlement agreements entered into in November 2007 between Shire and Watson Pharmaceuticals, Inc. (the “Settlement Agreements”). The Settlement Agreements cover a different ANDA and do not provide any license for Watson Laboratories, Inc.-Florida to sell the products covered in Watson Laboratories, Inc.-Florida's new ANDA. Within the requisite 45 day period, Shire filed a lawsuit in the U.S. District Court for the Southern District of New York against Watson Pharmaceuticals, Inc., Watson Laboratories, Inc.-Florida, Watson Pharm, Inc., Andrx Corporation, and Andrx Pharmaceuticals, L.L.C. for infringement of certain of Shire's ADDERALL XR patents and also for breach of contract in connection with the Settlement Agreements. The filing of the lawsuit triggered a stay of approval of this ANDA for up to 30 months. A Markman hearing was held on June 13, 2012 but no decision has been rendered. On June 22, 2012, the FDA responded to Shire's ADDERALL XR citizen petition and set forth more stringent bioequivalence standards that all ANDAs for ADDERALL XR must meet for approval. On July 30, 2012, Shire filed a request with the U.S. District Court for the Southern District of New York seeking a 90-day stay of these legal proceedings because Shire believes Watson Laboratories, Inc.-Florida's ANDA fails to meet the FDA's new bioequivalence standards and will not receive FDA approval. The judge granted the 90-day stay on August 3, 2012. On January 18, 2013, Shire, in conjunction with Watson and Par Pharmaceutical, Inc. (the successor-in-interest to Watson's ANDA for ADDERALL XR), filed a Stipulation and Order of Dismissal for all claims, counterclaims and defenses. Shire agreed to dismiss the pending proceedings without prejudice because Par has withdrawn its ANDA for ADDERALL XR and therefore Shire has no reason to continue with the litigation. The Stipulation and Order of Dismissal was ordered by the Judge on January 23, 2013, and the litigation has been dismissed.

In February 2013, Shire was notified that Neos Therapeutics, Inc. had submitted a New Drug Application under section 505(b)(2) of the Hatch Waxman Act (“505(b)(2) Application”). The 505(b)(2) Application was submitted with a paragraph IV certification for the patents listed in the Orange Book.  Within the requisite 45 day period, Shire filed a lawsuit in the Northern District of Texas against Neos Therapeutics, Inc. for infringement of certain of Shire's ADDERALL XR patents. The filing of the lawsuit triggered a stay of final approval of the 505(b)(2) Application for 30 months.  No trial date has been set.

DERMAGRAFT

 

On January 4, 2013 Shire was notified that the Massachusetts Institute of Technology (“MIT”) filed a lawsuit against Shire in the US District Court for the District of Massachusetts, alleging that Shire's manufacture, use and sale of DERMAGRAFT infringes patents owned by MIT. The three US patents asserted by MIT are US Patent Nos. 5,759,830, 5,770,417 and 5,770,193. Shire has not yet been served with a Complaint and no trial date has been set.

Subpoena related to ADDERALL XR, DAYTRANA and VYVANSE

 

On September 23, 2009 the Company received a civil subpoena from the US Department of Health and Human Services Office of Inspector General in coordination with the US Attorney for the Eastern District of Pennsylvania seeking production of documents related to the sales and marketing of ADDERALL XR, DAYTRANA and VYVANSE. The investigation covered whether Shire engaged in off-label promotion and other conduct that may implicate the civil False Claims Act.

On February 1, 2013 the Company announced it had reached an agreement in principle to resolve this matter.  The agreement also addresses sales and marketing practices relating to LIALDA and PENTASA pursuant to a subsequent voluntary disclosure made by the Company. Shire cooperated with the US Government throughout the process that led to this agreement in principle.

The Company has recorded a $57.5 million charge comprised of the agreement in principle amount, interest and costs, which has been charged to SG&A in the fourth quarter of 2012.  The agreement in principle is subject to change until this matter is finally resolved.  Discussions between the Company and the US Government are ongoing to establish a final resolution to the investigation.

 

Investigation related to DERMAGRAFT

 

Shire understands that the Department of Justice, including the US Attorney's Office for the Middle District of Florida, Tampa Division and the US Attorney's Office for Washington, DC, is conducting civil and criminal investigations into the sales and marketing practices of ABH relating to DERMAGRAFT. Shire is cooperating fully with these investigations. Shire is not in a position at this time to predict the scope, duration or outcome of these investigations.

Civil Investigative Demand for ADDERALL XR, ADDERALL XR Authorized Generics and VYVANSE

 

On April 5, 2012 Shire received a Civil Investigative Demand (“CID”) from the United States Federal Trade Commission (“FTC”) requesting that Shire provide it with certain information regarding the supply and reported shortages of ADDERALL XR and its authorized generics and the marketing and sale of ADDERALL XR, its authorized generics and VYVANSE. Shire believes the CID was triggered by reports of product shortages of ADDERALL XR and the authorized generic products in 2011. Shire is cooperating fully with the FTC. At this time, Shire is unable to predict the outcome or duration of this investigation.