Commitments and Contingencies

3 Months Ended

Mar. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure

16.       Commitments and contingencies

(a)       Leases

Future minimum lease payments under operating leases at March 31, 2014 are presented below:

	Operating
	leases
	$’M
	_____________
2014	30.1
2015	32.3
2016	24.5
2017	20.7
2018	15.6
2019	12.9
Thereafter	95.5
	_____________
	231.6
	_____________

The Company leases land, facilities, motor vehicles and certain equipment under operating leases expiring through 2032. Lease and rental expense amounted to $13.2million and$17.8million for the three monthsMarch 31, 2014 and2013respectively, which is predominately included in SG&Aexpenses in the Company's consolidated income statement.

(b)       Letters of credit and guarantees

At March 31, 2014 the Company had irrevocable standby letters of credit and guarantees with various banks and insurance companiestotaling $59.6million, 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:

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 three monthsto March 31, 2014 Shire received up-front and milestone payments totaling$1.0 million (2013: $nil). In the three monthsto March 31, 2014 Shire recognized milestone income of $1.5million (2013: $0.5 million) in other revenues and $12.5million (2013: $14.5 million) in product sales for shipment of product to the relevant licensee.

(d)       Commitments

(i)       Clinical testing

At March 31, 2014 the Company had committed to pay approximately $ 356 million (December 31, 2013: $ 346 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, 2014 the Company had committed to pay approximately $ 636 million (December 31, 2013: $ 109 million) in respect of contract manufacturing. The Company expects to pay $ 142 million of these commitments in 2014. The increase in contract manufacturing commitments arises principally from commitments with ViroPharma's contract manufacturer of CINRYZE.

(iii)       Other purchasing commitments

At March 31, 2014 the Company had committed to pay approximately $ 449 million (December 31, 2013: $ 128 million) for future purchases of goods and services, predominantly relating to active pharmaceutical ingredients sourcing. The Company expects to pay $ 287 million of these commitments in 2014. The increase in other purchasing commitments arises principally from commitments with ViroPharma'ssuppliers of blood plasma used in the manufacturing of CINRYZE.

(iv)       Investment commitments

At March 31, 2014 the Company had outstanding commitments to subscribe for interests in companies and partnerships for amounts totaling $ 14 million (December 31, 2013: $ 14 million) which may all be payable in 2014, depending on the timing of capital calls.The investment commitments include additional funding to certain variable interest entities of which Shire is not the primary beneficiary. Theseentities control and conduct all related research up to achievement of pre-defined development success criteria at which point Shire will have an option to acquire the entity for pre-defined purchase consideration, including consideration contingent upon achievement of certain development and commercial milestones.

(v)       Capital commitments

At March 31, 2014 the Company had committed to spend $ 5 million (December 31, 2013: $ 12 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 March 31, 2014 provisions for litigation losses, insurance claims and other disputes totaled $69.9million (December 31, 2013: $72.7million).

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"). 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.

The District Court of New Jersey consolidated the cases against Sandoz, Roxane, Amneal and Actavis. Shire amended its complaints in all of the pending cases to add Johnson Matthey Inc. and Johnson Matthey Pharmaceutical Materials (collectively “Johnson Matthey”) as defendants. The lawsuit filed against Watson was transferred to the District Court of New Jersey but was not consolidated with the case against the other ANDA filers and the case was subsequently dismissed in view of the withdrawal of Watson's ANDA.

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 and Johnson Matthey in the US District Court for the District of New Jersey which was subsequently consolidated with the pending case in New Jersey against Sandoz, Roxane, Amneal and Actavis. In May 2012, the case that was filed against Mylan in the Eastern District of New York was transferred and consolidated with the pending case in New Jersey against Mylan, Sandoz, Roxane, Amneal and Actavis. 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.

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 ZydusCadila.

The case had been administratively closed since February 22, 2013, but was reopened on February 27, 2014. A Markman hearing is scheduled to take place on January 12, 2015. A trial is scheduled to begin on July 6, 2015.

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 and on 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 appealed the trial court's ruling to the Court of Appeals of the Federal Circuit (“CAFC”) and a hearing took place on December 2, 2013. The ruling of the CAFC was issued on March 28, 2014 overruling the trial court on the interpretation of two claim terms and remanding the case for further proceedings.

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 October 2014.

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 recorded a $57.5 million charge comprised of the agreement in principle amount, interest and costs, which was 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

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.

Following the disposal of DERMAGRAFT business, Shire has retained certain legacy liabilities including any liability that may arise from this investigation. 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.

Litigations related to ViroPharma

On January 24, 2014 Shire acquired ViroPharma. ViroPharma has been party to litigation in the ordinary course of its business. ViroPharma's principal pending legal and other proceedings are disclosed below.

On May 17, 2012, a class action complaint was filed in the United States District Court for the Eastern District of Pennsylvania naming as defendants ViroPharma Incorporated and Vincent J. Milano, who resigned as ViroPharma Incorporated's President and Chief Executive Officer upon completion of the ViroPharma acquisition by Shire. The complaint alleges, among other things, securities laws violations by the defendants in connection with certain statements made by the defendants related to VANCOCIN. On October 19, 2012, the complaint was amended to include individuals who were then officers of ViroPharma Incorporated as named defendants and allege additional information as the basis for the claim. ViroPharma moved to dismiss the complaint and an oral argument was held on June 10, 2013, but no decision has been issued.

On April 6, 2012, ViroPharma received a notification that the United States Federal Trade Commission (“FTC”) is conducting an investigation into whether ViroPharma had engaged in unfair methods of competition with respect to VANCOCIN. On August 3, 2012, ViroPharma received a Civil Investigative Demand from the FTC requesting additional information related to this matter. Shire intends to continue to cooperate fully with the FTC investigation. At this time, Shire is unable to predict the outcome or duration of this investigation.