7817 Annual Report 2009.qxd - Shire

Shire plc Annual Report and Accounts 200917Selling, general and administrative (’SG&A’)SG&A expenses decreased to $1,342.6 million (50% of product sales) for the year to December 31, 2009 from $1,455.2 million (53% of product sales)in the corresponding period in 2008. The decrease was due to the Group’s continued focus on cost management, and lower intangible assetimpairment charges in the year to December 31, 2009 compared to the same period in 2008. SG&A in the year to December 31, 2009 includesintangible asset amortization of $136.9 million (2008: $126.2 million), the increase resulting from a full year amortization of the FIRAZYR intangible asset.Intangible asset impairment charges in the year to December 31, 2009 were $nil (2008: $97.1 million). Impairment charges in 2008 included $94.6 millionrelated to DYNEPO which the Group ceased to commercialize. Depreciation included in SG&A was $67.7 million in 2009 (2008: $48.5 million).Gain on sale of product rightsFor the year to December 31, 2009 Shire recorded gains of $6.3 million (2008: $20.7 million) arising from the sale of non-core products to Almirallin 2007. These gains had been deferred since 2007 pending obtaining the relevant consents to transfer certain assets.In-process R&D (‘IPR&D’) chargeDuring the year to December 31, 2009 the Group recorded an IPR&D charge of $1.6 million (2008: $128.1 million), in respect of FIRAZYR in marketsoutside of the EU which, have not been approved by the relevant regulatory authorities. Also included in IPR&D in 2008 was a charge of $135.0 millionrelating to the acquisition of METAZYM from Zymenex.The IPR&D charge in respect of FIRAZYR relates to the US ($64.9 million) and the RoW ($64.8 million) markets. In the US FIRAZYR received a notapprovable letter from the FDA in April 2008, and in certain RoW territories it has not been approved by the regulatory authorities.METAZYM (HGT-1111) has completed a Phase 1b clinical trial in 12 MLD patients in Europe and an extension to this study is ongoing. Based onadditional long-term clinical data from the ongoing Phase 1b study in MLD, in the first quarter of 2010 Shire decided to suspend further developmentof an intravenous formulation of HGT-1111.Reorganization costsFor the year to December 31, 2009 Shire recorded reorganization costs of $12.7 million (2008: $nil) relating to the transfer of manufacturing fromits Owings Mills facility.Integration and acquisition costsFor the year to December 31, 2009 Shire recorded integration and acquisition costs of $10.6 million (2008: $10.3 million) primarily relating to theintegration of Jerini.Interest incomeFor the year to December 31, 2009 Shire received interest income of $1.9 million (2008: $25.5 million), primarily earned on cash and cash equivalents.Interest income for the year to December 31, 2009 is lower than the same period in 2008 due to significantly lower average interest rates in 2009compared to 2008 and lower average cash and cash equivalent balances.Interest expenseFor the year to December 31, 2009 the Group incurred interest expense of $39.8 million (2008: $139.0 million). Interest expense in 2009 primarilyrelated to interest expense on the Group’s convertible bond totaling $33.3 million (2008: $33.3 million). Interest expense in 2008 was higher than 2009due to interest expense of $87.3 million recorded in respect of the TKT appraisal rights litigation, of which $73.0 million was additional interest arisingfrom the settlement of the litigation in November 2008.Other income/(expense), netFor the year to December 31, 2009 the Group recognized Other income, net of $60.7 million. Other income in 2009 includes a gain of $55.2 millionon disposal of the Group’s investment in Virochem Pharma Inc. (‘Virochem’) to Vertex Pharmaceuticals Inc. (‘Vertex’) in a cash and stock transaction.Shire received total consideration of $19.2 million in cash and two million Vertex shares (valued at $50.8 million at the date these shares were acquired).Other income, net in 2009 also includes a gain of $5.7 million on the substantial modification of a property lease.For the year ended December 31, 2008, the Group recognized Other expenses, net of $32.9 million. Other expenses, net includes other-thantemporaryimpairment charges of $58.0 million. Impairment charges in 2008 include $44.3 million relating to the Group’s available-for-sale investmentin Renovo Group plc. Offsetting this in 2008 is a gain of $9.4 million from the disposal of the Group’s available-for-sale investment in QuestcorPharmaceutical Inc. (‘Questcor’) for cash consideration.TaxationIn the year to December 31, 2009 the effective tax rate was 22% (2008: 37%). Excluding the impact of IPR&D charges of $263.1 million in 2008, whichare either not tax deductible or for which no tax benefit is currently recognized, the effective tax rate in 2008 was 19%.The effective rate of tax in 2009 was higher than 2008 (excluding the impact of IPR&D charges) due to increased profits in higher tax territories, andthe recognition of valuation allowances against EU and US deferred tax assets. These factors more than offset reductions to the effective rate of taxin 2009 due to: the decrease in valuation allowances relating to state tax credits and loss carry forwards following Massachusetts State tax changesin 2009; the benefit of the effect of the change in the effective state tax rate on the net state deferred tax balance; and higher R&D tax credits in theUS, principally the acceleration of the VPRIV program.The consolidated financial statements for the year ended December 31, 2008 have been restated. The restatement does not affect the Group’s netincome or loss in the year ended December 31, 2008. For further information, see Note 33 to the consolidated financial statements.