Business Combinations

3 Months Ended

Mar. 31, 2014

Business Combinations [Abstract]

Business Combination Disclosure

2.       Business combinations

Proposed acquisition of Fibrotech

On May 1, 2014 Shire entered into a definitive agreement to acquire Fibrotech, a privately held, biotechnology company focused on the development of small molecules for the treatment of renal diseases and fibrosis. The acquisition of Fibrotechwill strengthen the Company's growing and innovative portfolio targeting renal and fibrotic diseases, and leverages existing renal capabilities. Shire will make an upfront payment of $75 million and additional contingent payments based on the achievement of development and regulatory milestones. The closing of the acquisition is subject to customary conditions, including approval of Australia's Foreign Investment Review Board.

Acquisition of ViroPharmaIncorporated (“ViroPharma”)

On January 24, 2014, Shirecompleted its acquisition of 100% of the outstanding share capital of ViroPharma. The acquisition-date fair value of cash consideration paid on closing was $3,997 million.

The acquisition of ViroPharmaaddedCINRYZE (C1 esterase inhibitor [human]) to Shire's portfolioof currently marketed products. CINRYZE is a leading brand for the prophylactic treatment of Hereditary Angioedema (“HAE”)in adolescents and adults.

The acquisition of ViroPharmahas beenaccounted for as a purchase business combination using the acquisition method. The assets acquired and the liabilities assumed from ViroPharmahave been recorded at their preliminary fair values at the date of acquisition, being January 24, 2014. The Company's consolidated financial statements include the results of ViroPharma from January 24, 2014. The amount of ViroPharma's post acquisition revenues and pre-tax losses included in the Company's consolidated statement of income for the three months to March 31, 2014 were $92.8 million and $59.2 million respectively. The pre-tax loss in the three months to March 31, 2014is stated after charges on the unwind of inventory fair value adjustments of $38.8 million, intangible asset amortization of $23.3 million and integration costs of $25.8 million.

The Company's preliminary allocation of the purchase price to the assets acquired and liabilities assumed is outlined below:

	Preliminary
	Fair value
	$’M
Identifiable assets acquired and liabilities assumed
ASSETS
Current assets:
Cash and cash equivalents	232.6
Short term investments	57.8
Accounts receivable	52.2
Inventories	203.5
Deferred tax assets	100.2
Purchased call option	346.7
Other current assets	42.5
	_______________
Total current assets	1,035.5
Non-current assets:
Property, plant and equipment	24.7
Goodwill	1,536.6
Other intangible assets
- Currently marketed products	2,320.0
- IPR&D	530.0
Other non-current assets	11.6
	_______________
Total assets	5,458.4
	_______________
LIABILITIES
Current liabilities:
Accounts payable and other current liabilities	116.6
Convertible bond	551.4
Non-current liabilities:
Deferred tax liabilities	695.9
Other non-current liabilities	97.5
	_______________
Total liabilities	1,461.4
	_______________
Fair value of identifiable assets acquired and liabilities assumed	3,997.0
	_______________
Consideration
Cash consideration paid	3,997.0
	_______________

The purchase price allocation is preliminary pending final determination of the fair values of certain assets and liabilities. The final determination of these fair values will be completed as soon as possible but no later than one year from the acquisition date.

(a) Other intangible assets – currently marketed products

Other intangible assets totaling $2,320.0 million relate to intellectual property rights acquired for ViroPharma's currently marketed products, primarily attributed to CINRYZE, for the routine prophylaxis against HAE attacks in adolescent and adult patients. Shire also obtained intellectual property rights to three other commercialized products, PLENADREN, an orphan drug for the treatment of adrenal insufficiency in adults, BUCCOLAM, an oromucosal solution for the treatment of prolonged, acute, and convulsive seizures in infants, toddlers, children and adolescents and VANCOCIN, an oral capsule formulation for the treatment of C. difficile-associated diarrhea (“CDAD”). The preliminary fair value of currently marketed products has been estimated using an income approach, based on the present value of incremental after tax cash flows attributable to each separately identifiable intangible asset.

The estimated useful lives of the CINRYZE, PLENADREN, BUCCOLAM and VANCOCIN intangible assets range from3 to 23years (weighted average 21 years), with amortization being recorded on a straight line basis.

(b) Other intangible assets – IPR&D

IPR&D relates to development projects acquired with ViroPharma, that have been initiated and have achieved material progress and whose fair value is estimable with reasonable certainty but (i) have not yet reached technological feasibility or have not yet received the relevant regulatory approval and (ii) have no alternative future use.

IPR&D, totaling $530.0 million principally relates to Maribavir, an investigational antiviral product for cytomegalovirus and VP20621, a non-toxigenic strain of C.difficile for the treatment and prevention of CDAD. The preliminary fair value of these IPR&D assets has been estimated based on an income approach, using the present value of incremental after tax cash flows expected to be generated by these development projects after the deduction of contributory asset charges for other assets employed in these projects. The estimated cash flows have been probability adjusted to take into account their stage of completion and the remaining risks and uncertainties surrounding their future development and commercialization.

The major risks and uncertainties associated with the timely completion of the acquired IPR&D projects include the ability to confirm the efficacy of the technology based on the data from clinical trials, and obtaining the relevant regulatory approvals as well as other risks as described in PART 1: ITEM 1A “Risk Factors” of the Company's annual report on Form 10-K. The valuation of IPR&D has been based on information available at the time of the acquisition and on expectations and assumptions that (i) have been deemed reasonable by the Company's management and (ii) are based on information, expectations and assumptions that would be available to a market participant. However, no assurance can be given that the assumptions and events associated with such assets will occur as projected. For these reasons, the actual cash flows may vary from forecast future cash flows.

The estimated probability adjusted after tax cash flows used in fair valuing other intangible assets have been discounted at rates ranging from 9.5% to 10.0%.

(c) Goodwill

Goodwill arising of $1,536.6 million, which is not deductible for tax purposes, includes the expected operational synergies that will result from combining the operations of ViroPharma with the operations of Shire;other synergies expected to be realized due to Shire's structure; intangible assets that do not qualify for separate recognition at the time of the acquisition; and the value of the assembled workforce.

In the three months to March 31, 2014 the Company expensed costs of $65.8 million (2013: $nil) relating to the acquisition and post acquisition integration of ViroPharma, which have been recorded within Integration and acquisition costs in the Company's consolidated statement of income.

Supplemental disclosure of proforma information

The following unaudited pro forma financial information presents the combined results of the operations of Shire and ViroPharma as if the acquisition of ViroPharma had occurred as at January 1, 2013. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations actually would have been had the acquisition been completed at the date indicated. In addition, the unaudited pro forma financial information does not purport to project the future results of operations of the combined Company.

	3 months to	3 months to
	March 31,	March 31,
	2014	2013
	$’M	$’M
	_______________	_______________
Revenues	1,378.6	1,250.5
Net income from continuing operations	219.4	129.7
	_______________	_______________
Per share amounts:
Net income from continuing operations per share - basic	37.6c	23.5c
Net income from continuing operations per share - diluted	37.4c	22.0c
	_______________	_______________

The unaudited pro forma financial information above reflects the following pro forma adjustments:

• an adjustment to decrease net income by $33.8 million for the period to March 31,2013 to reflect acquisition costs incurred by Shire, and increase net income by $23.2 million for the period to March 31,2014 to eliminate acquisition costs incurred;
• an adjustment to decrease net income by approximately $25.1 million for the period to March 31, 2013, to reflect charges on the unwind of inventory fair value adjustments as acquisition date inventory is sold, and a corresponding increase in net income for the period to March 31, 2014;
• an adjustment of $12 million in the period to March 31, 2013 to reflect additional interest expense associated with the drawdown of debt to partially finance the acquisition of ViroPharma and the amortization of related deferred debt issuance costs;
• an adjustment to increase amortization expense by approximately $6.1 million in the period to March 31, 2014 and $16.3 million in the period to March 31, 2013, related to amortization of the fair value of identifiable intangible assets acquired and the elimination of ViroPharma's historical intangible asset amortization expense;
• an adjustment to reflect the additional depreciation expense (approximately $0.1 million in the period to March 31, 2014 and 2013) related to the fair value adjustment to property, plant and equipment acquired;
• adjustments to reflect the tax effects of the above adjustments, where applicable