Commitments and Contingencies

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure

13.       Commitments and contingencies

(a)       Leases

Future minimum lease payments under operating leases at September 30, 2013 are presented below:

	Operating
	leases
	$’M
	_____________
2013	11.4
2014	42.5
2015	31.8
2016	23.4
2017	17.8
2018	12.1
Thereafter	83.2
	_____________
	222.2
	_____________

The Company leases land, facilities, motor vehicles and certain equipment under operating leases expiring through 2032. Lease and rental expense amounted to $35.5million and$31.4million for the nine months to September 30, 2013 and2012respectively, which is predominately included in SG&Aexpenses in the Company's consolidated income statement.

(b)       Letters of credit and guarantees

At September 30, 2013 the Company had irrevocable standby letters of credit and guarantees with various banks and insurance companiestotaling $54million, 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, returned Shire's rights in the asset to Acceleron and discontinued the collaboration.

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 $71.5 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 nine months to September 30, 2013 Shire received up-front and milestone payments totaling $3.0 million (2012: $6.0 million). In the nine monthsto September 30, 2013 Shire recognized milestone income of $4.5million (2012: $6.7 million) in other revenues and $43.8million (2012: $57.6 million) in product sales for shipment of product to the relevant licensee.

(d)       Commitments

(i)       Clinical testing

At September 30, 2013 the Company had committed to pay approximately $ 332 million (December 31, 2012: $ 425 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 September 30, 2013 the Company had committed to pay approximately $ 84 million (December 31, 2012: $ 125 million) in respect of contract manufacturing. The Company expects to pay $ 46 million of these commitments in 2013.

(iii)       Other purchasing commitments

At September 30, 2013 the Company had committed to pay approximately $ 101 million (December 31, 2012: $ 145 million) for future purchases of goods and services, predominantly relating to active pharmaceutical ingredients sourcing. The Company expects to pay $ 89 million of these commitments in 2013.

(iv)       Investment commitments

At September 30, 2013 the Company had outstanding commitments to subscribe for interests in companies and partnerships for amounts totaling $ 15 million (December 31, 2012: $ 15 million) which may all be payable in 2013, depending on the timing of capital calls.

(v)       Capital commitments

At September 30, 2013 the Company had committed to spend $ 109 million (December 31, 2012: $ 97 million) on capital projects.

(e)Legaland 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 may be 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 September 30, 2013 provisions for litigation losses, insurance claims and other disputes totaled $86.2 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"). In February 2013, Shire withdrew its lawsuit against Watson following Watson's withdrawal of its ANDA.On December 9, 2011, the District Court of New Jersey consolidated the Sandoz, Roxane, Amneal and Actavis 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 May 2012, the Mylan case that was filed in the Eastern District of New York was transferred and consolidated with the Mylan, Sandoz, Roxane, Amneal and Actavis cases in New Jersey. In December 2012, the parties completed a Markman briefing. A Markman hearing took place on August 5, 2013 and a ruling was rendered on August 8, 2013. No trial dates have been set.

INTUNIV

Between March 2010 and March 2011, Shire was notified that seven separate ANDAs had been submitted to the FDA under the Hatch-Waxman Act seeking permission to market generic versions of all approved strengths of INTUNIV. The ANDA filers were Actavis Inc., Teva Pharmaceuticals USA, Inc., Anchen, Inc., Watson Pharmaceuticals, Inc., Impax Laboratories, Inc., Mylan Pharmaceuticals, Inc., Sandoz, Inc., and certain of their respective affiliates.  Shire filed lawsuits against each of these ANDA filers.  All of the lawsuits have now been settled.  Under the terms of the Actavis settlement, Actavis has a license to make and market Actavis' generic versions of INTUNIV in the United States on December 1, 2014.  Such sales will require the payment of a royalty of 25% of gross profits to Shire during the 180 day period of Actavis' exclusivity. All other parties with whom Shire has settled will be able to enter the market with their respective ANDA-approved products after Actavis' 180 day exclusivity period has expired.  Each of the settlements included a consent judgment confirming that the proposed ANDA products infringe the patents-in-suit, U.S. Patents 6,287,599 and 6,811,794, and that those patents are valid and enforceable with respect to their respective proposed ANDA products.   U.S. Patent 5,854,290, which was originally asserted in some of the litigations, has been dedicated to the public.

FOSRENOL

Between February 2009 and December 2010 Shire was notified that four separate ANDAs had been submitted to the FDA under the Hatch-Waxman Act seeking permission to market generic versions of all approved strengths of FOSRENOL. The ANDA filers were Barr Laboratories, Inc.; Mylan, Inc.; Natco Pharma Limited and Alkem Laboratories Ltd., and certain of their respective affiliates. Shire filed lawsuits against each of these ANDA filers.  In April 2011, Shire and Barr reached a settlement and the lawsuit against Barr was dismissed.  The settlement provides Barr with a license to market its own generic version of FOSRENOL upon receiving FDA approval in the US on the earlier of the date of entry ofanother company's generic version of FOSRENOL to the US market, or October 1, 2021.  Shire's lawsuits against Mylan, Alkem and Natco have each been dismissed, and consequently, each of Mylan, Alkem and Natco may enter the US market upon FDA approval of their respective ANDA products.

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 disputes. A Markman hearing took place on August 22, 2013 but no ruling has been rendered. 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 in April, 2013 andon May 9, 2013 the trial court issued a decision finding that the proposed generic product infringes the patent-in-suit and that the patent is not invalid.  Watson has appealed the trial court's ruling to the Court of Appeals of the Federal Circuit and a hearing is scheduled for December 2, 2013.

In April 2012, Shire was notified that Mylan Pharmaceuticals, Inc. (“Mylan”) 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 occur in September, 2014.

ADDERALL XR

On November 1, 2010 Impax Laboratories, Inc. (“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. 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 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. Shire filed a lawsuit in the U.S. District Court for the Southern District of New York against Watson Pharmaceuticals, Inc. and certain of its affiliates for infringement of certain of Shire's ADDERALL XR patents. Par Pharmaceutical, Inc. (the successor in interest to Watson's ANDA for ADDERALL XR) has withdrawn its ANDA, and the litigation was dismissed on January 23, 2013 by agreement between Shire, Watson and Par Pharmaceutical, Inc..

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 U.S. Reissued Patent Nos. RE41,148 and 42,096listed 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 those 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.

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.

Louisiana Complaint related to ADDERALL, ADDERALL XR, DAYTRANA, VYVANSE and INTUNIV

On July 22 and July 23, 2013, the State of Louisiana served Shire LLC and Shire US Inc., respectively, with a civil complaint filed in the 19th Judicial District Court for the Parish of East Baton Rouge. The complaint alleges that Shire's sales, marketing, and promotion of ADDERALL, ADDERALL XR, DAYTRANA, VYVANSE and INTUNIV violated state law. The State is seeking monetary relief for its claims of fraud, redhibition, and unjust enrichment, as well as violations of Louisiana's Medical Assistance Programs Integrity Law, Unfair Trade Practices Act, and anti-trust laws. Shire intends vigorously to defend these claims. Shire is not in a position at this time to predict the timing, result or outcome of these claims.

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 Advanced BioHealing Inc. (“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 responded to the CID in 2012. On August 29, 2013, the FTC informed Shire that it was closing the investigation without taking any further action.