PHILADELPHIA, Pennsylvania and DUBLIN, Ireland, February 19 /PRNewswire-FirstCall/ -- Shire plc the global specialty biopharmaceutical company announces results for the year to December 31, 2008 - a year which has seen significant growth in Shire’s new product portfolio.
Angus Russell, Chief Executive Officer, commented:
“2008 saw excellent growth across the business. 2009 will see continued momentum in our business as we drive growth in existing products, pursue launches of new products and continue to develop our strong pipeline of drugs. The growth from our existing new products and our well established pipeline will be enhanced by our strategy to generate incremental returns and growth through targeted acquisitions. We will support this by continued careful management of our robust balance sheet, a focus on cash generation and flexible management of our cost base.
“We reiterate the earnings guidance framework for 2009 published in our third quarter earnings statement, and our aspiration of growing sales in the mid teens range on average between 2009 and 2015. We look forward confidently to the future.”
VYVANSE - for use in the treatment of attention deficit and hyperactivity disorder (“ADHD”) in children in the European Union (“EU”)
2009 OUTLOOK
Our business model remains differentiated and attractive. It is based on addressing high unmet medical needs within specialist fields, developing drugs that treat symptomatic and/or rare diseases with strong intellectual property and/or regulatory protection. We will continue to replenish our portfolio of products via in-licensing, acquisitions and our own development efforts, as well as expanding our geographical reach and lead in the markets we serve.
We believe that our new product portfolio will continue to deliver strong, high margin growth throughout 2009 and 2010 and provide the platform for future revenue and earnings growth. We have assumed a significant decline in ADDERALL XR sales in 2009 but we have recognized that there are a number of variables that will influence the outcome. As a result, while continuing to invest in the future drivers of our business, we will flexibly manage our discretionary cost base to minimize any variation in expected earnings as the year develops.
We are reiterating our previously announced guidance framework for Non GAAP diluted earnings per ADS for 2009, which remains unchanged from that provided at the time of our third quarter earnings statement. At that time, we provided details of the effect of changes in foreign exchange rates on the earnings guidance. Specifically, our plans for 2009, supporting Non GAAP diluted earnings per ADS for 2009 in the range of $3.00 to $3.40, were based on average actual foreign exchange rates (EUR1:$1.52, GBP1:$1.95) for the ten months to October 2008.
We identified that each 10c movement in the EUR:$ and GBP:$ exchange rates impacts Shire’s Non GAAP diluted earnings per ADS by $0.10 and $0.01 respectively. We are unable to provide any forecast on the outcome of foreign exchange movements during 2009, but based on the following exchange rate scenarios the impact on our base guidance would be:
Our guidance framework for Non GAAP diluted earnings per ADS is not prepared in accordance with US GAAP. Non GAAP diluted earnings per ADS excludes the effect of certain cash and non-cash items, both recurring and non-recurring, that Shire’s management believes are not related to the core performance of Shire’s business. A list of these items can be found on pages 6-7.
NEW PRODUCT LAUNCHES
Subject to obtaining the relevant regulatory/governmental approvals, product launches planned over the next two years include:
CASHFLOW AND LIQUIDITY
Shire’s robust balance sheet includes $218 million of cash and cash equivalents at December 31, 2008. We generated $800 million of cash from operating activities during the year. Shire has no debt or facilities maturing in the next three years and substantially all of Shire’s debt relates to its $1.1 billion 2.75% convertible bonds which mature in 2014, although these include a put option which could require repayment in 2012. In addition, Shire has a committed facility until 2012 of $1.2 billion, which is currently undrawn.
DIVIDEND
In respect of the six months to December 31, 2008 the Board has resolved to pay a second interim dividend of 7.761 US cents per ordinary share (2007: 6.469 US cents per ordinary share). Together with the first interim payment of 2.147 US cents per ordinary share (2007: 2.147 US cents per ordinary share), this represents total dividends for 2008 of 9.908 US cents per ordinary share (2007: 8.616 US cents per ordinary share), an increase of 15% in US Dollar terms over 2007.
Notes to editors
SHIRE PLC
Shire’s strategic goal is to become the leading specialty biopharmaceutical company that focuses on meeting the needs of the specialist physician. Shire focuses its business on attention deficit and hyperactivity disorder (“ADHD”), human genetic therapies (“HGT”) and gastrointestinal (“GI”) diseases as well as opportunities in other therapeutic areas to the extent they arise through acquisitions. Shire’s in-licensing, merger and acquisition efforts are focused on products in specialist markets with strong intellectual property protection and global rights. Shire believes that a carefully selected and balanced portfolio of products with strategically aligned and relatively small-scale sales forces will deliver strong results.
For further information on Shire, please visit the Company’s website: http://www.shire.com
ADDITIONAL INFORMATION
THE “SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements included herein that are not historical facts are forward-looking statements. Such forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, the Company’s results could be materially adversely affected. The risks and uncertainties include, but are not limited to, risks associated with: the inherent uncertainty of research, development, approval, reimbursement, manufacturing and commercialization of the Company’s Specialty Pharmaceutical and Human Genetic Therapies products, as well as the ability to secure and integrate new products for commercialization and/or development; government regulation of the Company’s products; the Company’s ability to manufacture its products in sufficient quantities to meet demand; the impact of competitive therapies on the Company’s products; the Company’s ability to register, maintain and enforce patents and other intellectual property rights relating to its products; the Company’s ability to obtain and maintain government and other third-party reimbursement for its products; and other risks and uncertainties detailed from time to time in the Company’s filings with the Securities and Exchange Commission.
Non GAAP Measures
This press release contains financial measures not prepared in accordance with US GAAP. These measures are referred to as “Non GAAP” measures and include: Non GAAP operating income; Non GAAP net income; Non GAAP diluted earnings per ordinary share; Non GAAP diluted earnings per ADS; effective tax rate on Non GAAP income from continuing operations before income taxes, minority interest and equity method investees (“Effective tax rate on Non GAAP income”); Non GAAP Cost of product sales; Non GAAP Research and development; Non GAAP Selling, general and administrative; Non GAAP operating expenses; Non GAAP interest expense; and Non GAAP other income. These Non GAAP measures exclude the effect of certain cash and non-cash items, both recurring and non-recurring, that Shire’s management believes are not related to the core performance of Shire’s business.
These Non GAAP financial measures are used by Shire’s management to make operating decisions because they facilitate internal comparisons of the Company’s performance to historical results and to competitors’ results. These measures are also considered by Shire’s Remuneration Committee in assessing the performance and compensation of employees, including its executive directors.
The Non GAAP measures are presented in this press release as the Company’s management believe that they will provide investors with a means of evaluating, and an understanding of how Shire’s management evaluates, the Company’s performance and results on a comparable basis that is not otherwise apparent on a US GAAP basis, since many one-time, infrequent or non-cash items that the Company’s management believe are not indicative of the core performance of the business may not be excluded when preparing financial measures under US GAAP.
These Non GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with US GAAP.
The following items are excluded from net income from continuing operations in calculating both 2008 results and 2009 guidance for Non GAAP diluted earnings per ADS:
Depreciation, which is included in Cost of product sales, Research and development costs and Selling, general and administrative costs in our GAAP results, has been separately disclosed for the presentation of 2008 Non GAAP earnings (see pages 26 to 28).
Dividend Payments
Dividend payments will be made in Pounds sterling to Ordinary Shareholders and US Dollars to American Depositary Share (“ADS”) holders. A dividend of 5.469 pence per ordinary share and 23.283 US cents per ADS, respectively, will be paid. The Board has resolved to pay the dividend on April 8, 2009 to persons whose names appear on the register of members of the Company at the close of business on Friday March 13, 2009.
As previously disclosed, Shire has put in place Income Access Share arrangements enabling shareholders to choose whether they receive their dividends from a company resident for tax purposes in the Republic of Ireland or from a company resident for tax purposes in the UK. In accordance with the Shire ADS Deposit Agreement, the ADS Depositary has made an election on behalf of all holders of ADSs to receive UK sourced dividends. Details of the Income Access Share arrangements can be found in the Scheme Circular issued on April 16, 2008, which is available on the Company’s website http://www.shire.com
TRADEMARKS
The following are trademarks either owned or licensed by Shire plc or companies within the Shire group which are the subject of trademark registrations in certain territories, or which are owned by third parties as indicated and referred to in this press release:
Revenues from continuing operations for the year to December 31, 2008 increased by 24% to $3,022.2 million (2007: $2,436.3 million).
Non GAAP operating income for the year to December 31, 2008 increased by 46% to $958.1 million (2007: $657.9 million), the increase of $300.2 million arising due to higher revenues and improved operating cost ratios in 2008 over the same period in 2007. As a result of significant cost leverage, in 2008 Non GAAP operating expenses reduced by 7 percentage points to 75% of product sales, (2007: 82% of product sales).
GAAP operating income from continuing operations for the year to December 31, 2008 was $412.0 million (2007: loss of $1,379.1 million). GAAP operating income from continuing operations in 2008 includes costs of $149.9 million associated with the cessation of commercialization of DYNEPO, and charges of $263.1 million for the write-off of in-process research and development (“IPR&D”) for METAZYM acquired from Zymenex and development projects acquired with Jerini. The operating loss from continuing operations in 2007 resulted from the write-off of $1,866.4 million of IPR&D relating to development projects acquired through the acquisition of New River Pharmaceuticals Inc. (“New River”).
Cash inflow from operating activities for the year to December 31, 2008 increased by 69% to $800.1 million (2007: $474.7 million). Cash inflow from operating activities in 2008 is stated after upfront payments and milestones in respect of acquired and in-licensed technology of $135.0 million (2007: $155.9 million), and interest payments of $147.6 million (2007: $nil) on settlement of litigation with the TKT dissenting shareholders. Excluding these items cash inflow from operating activities for the year to December 31, 2008 increased by $452.1 million compared to 2007.
Cash, cash equivalents and restricted cash at December 31, 2008 totaled $247.4 million (December 31, 2007: $802.0 million). Cash, cash equivalents and restricted cash decreased by $554.6 million during the year to December 31, 2008 as the strong cash inflow from operating activities was more than offset by the settlement of the litigation with the dissenting TKT shareholders, the acquisition of a voting interest of over 98% in Jerini ($499.4 million net of cash acquired), investment in the new HGT campus in Lexington, Massachusetts and in the Basingstoke, UK offices, and the acquisition of treasury stock through the Employee Share Ownership Trust (“ESOT”) ($146.6 million).
Summary of Q4 2008
Revenues from continuing operations for the three months to December 31, 2008 increased by 6% to $765.8 million (2007: $724.5 million).
Non GAAP operating income for the three months to December 31, 2008 increased by 14% to $241.1 million (2007: $212.1 million). The increase in Non GAAP operating income resulted from higher revenues in 2008 over 2007 and a lower Non GAAP operating expense ratio of 74% of product sales (2007: 77% of product sales).
GAAP operating income from continuing operations for the three months to December 31, 2008 decreased by 17% to $193.4 million (2007: $232.2 million). Despite increased revenues in 2008 over 2007, GAAP operating income from continuing operations in Q4 2008 was lower than Q4 2007 primarily due to gains related to the sale of non-core product rights of $115.7 million recognized in the fourth quarter of 2007 which were not repeated in 2008.
Cash inflow from operating activities for the three months to December 31, 2008 increased to $274.6 million (2007: $66.6 million). Excluding interest payments on settlement of litigation with the TKT dissenting shareholders of $147.6 million in 2008 (2007: $nil) and upfront payments in respect of in-licensed technology of $75.0 million in 2007 (2008: $nil), cash inflow from operating activities for the three months to December 31, 2008 increased by $280.6 million compared to the same period in 2007.
2. Product sales
The continued growth in market share of VYVANSE helped Shire grow its average annual share of the US ADHD market to 32.6% for the year to December 31, 2008 compared to 29.4% in 2007. Shire has the leading portfolio of products in the US ADHD market.
ADDERALL XR - ADHD
ADDERALL XR’s average share of the US ADHD market for 2008 fell to 22.6% (2007: 25.5%). US prescriptions for ADDERALL XR for the year to December 31, 2008 decreased by 5% compared to 2007 due to an 11% fall in average market share offset by a 7% growth in the US ADHD market.
Sales of ADDERALL XR for the year to December 31, 2008 were $1,101.7 million, an increase of 7% compared to the same period in 2007 (2007: $1,030.9 million), with the decline in prescriptions being more than offset by price increases.
As previously disclosed, the United States Federal Trade Commission (“FTC”) informed Shire on October 3, 2006 that it was reviewing the ADDERALL XR patent litigation settlement agreement between Shire and Barr. On June 22, 2007 the Company received a civil investigative demand requesting that it provide information to the FTC relating to its settlement with Barr and its earlier settlement with Impax Laboratories, Inc. The Company is cooperating fully with this investigation and believes that the settlements are in compliance with all applicable laws.
Litigation proceedings concerning Shire’s ADDERALL XR patents are ongoing. Further information on this litigation can be found in our filings with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year to December 31, 2007 and our most recent Quarterly Report on Form 10-Q for the period to September 30, 2008.
VYVANSE - ADHD
VYVANSE was launched in the US in July 2007 as the first and only once-daily pro-drug stimulant to treat ADHD.
In April 2008 VYVANSE was approved by the FDA for use in adults and Shire launched VYVANSE for adult ADHD in June 2008.
In July 2008 Shire launched VYVANSE in 20mg, 40mg and 60mg dosage strengths, which are designed to increase the dosing flexibility of VYVANSE.
Product sales for the year to December 31, 2008 were $318.9 million (2007: $76.5 million). Product sales growth was driven by the increase in average share of the US ADHD market (8.2% for the year to December 31, 2008 compared to 1.8% in 2007) and a price increase in April 2008.
DAYTRANA - ADHD
Product sales for the year to December 31, 2008 were $78.7 million (2007: $64.2 million). DAYTRANA’s average annual share of the US ADHD market decreased to 1.8% in 2008 compared to 2.1% in 2007.
Despite the 11% decrease in prescriptions compared to 2007, sales of DAYTRANA grew 23% compared to the same period last year due to growth in the US ADHD market of 7% and lower sales deductions in 2008 over 2007, primarily due to reduced coupon expense.
During 2008 Shire announced two voluntary market recalls of a limited portion of DAYTRANA patches because certain patches did not meet their release liner removal specifications which may have resulted in some patients and caregivers having difficulties removing the liners. The voluntary recalls were not due to safety issues. Shire and Noven Pharmaceuticals Inc. (the manufacturer of DAYTRANA) continue to pursue enhancements to the product and to work closely with the FDA to implement changes that may improve the usability of DAYTRANA. There has been no interruption in the production of DAYTRANA.
US oral mesalamine market share
Shire’s average annual market share of the US oral mesalamine market rose to 28.4% for the year to December 31, 2008 (2007: 21.1%), driven by the growth of LIALDA since its launch in March 2007.
LIALDA/MEZAVANT - Ulcerative colitis
US prescriptions of LIALDA for the year to December 31, 2008 were up 204% compared to the prior year and LIALDA’s average market share for 2008 increased to 11.7% (2007: 3.9%). LIALDA’s US product sales for the year to December 31, 2008 were $134.8 million compared to $50.3 million in 2007.
In April 2008, TAP Pharmaceutical Products Inc. (“TAP”) commenced co-promotion of LIALDA in the US in accordance with the co-promotion agreement entered into in March 2008. This agreement adds more than 500 additional sales representatives from TAP which will increase the reach and frequency of sales calls covering an additional 22,000 doctors.
Sales of MEZAVANT outside the US for the year to December 31, 2008 were $5.6 million (2007: $0.2 million). By December 31, 2008 MEZAVANT was available in five EU countries. Launches are planned in other countries during 2009, subject to the successful conclusion of pricing and reimbursement negotiations.
PENTASA - Ulcerative colitis
US prescriptions of PENTASA for the year to December 31, 2008 were down 1% compared to 2007 primarily due to a small decrease in PENTASA’s average annual market share from 17.2% in 2007 to 16.7% in 2008, offset by a 2% increase in the US oral mesalamine prescription market.
Sales of PENTASA for the year to December 31, 2008 were $185.5 million, an increase of 5% compared to 2007 (2007: $176.4 million). Sales growth is higher than prescription growth primarily due to the impact of price increases.
FOSRENOL - Hyperphosphatemia
At December 31, 2008 FOSRENOL was available in 30 countries and global sales grew by 52% to $155.4 million for the year to December 31, 2008 (2007: $102.2 million). Sales of FOSRENOL outside the US for the year to December 31, 2008 were $69.5 million (2007: $40.1 million).
US sales of FOSRENOL for the year to December 31, 2008 were up 38% to $85.9 million compared to 2007 (2007: $62.1 million). FOSRENOL’s average prescription share of the US phosphate binder retail market decreased to 8.1% for the year to December 31, 2008 (2007: 8.6%). Product sales increased despite the decrease in prescriptions due to price increases and a 34% increase in FOSRENOL’s share of the non retail market resulting from Shire’s continued focus on specialist physicians, clinics and dialysis centers.
In April 2008 Shire and Abbott Laboratories Inc. mutually agreed to terminate their Co-Promotion Agreement for FOSRENOL in the US. Shire will continue to promote FOSRENOL on its own in the US and throughout Europe.
XAGRID - Thrombocythemia
Sales for the year to December 31, 2008 were $78.7 million, an increase of 18% compared to the same period in 2007 (2007: $66.8 million). On a constant exchange rate basis, sales rose 15% (XAGRID is primarily sold in Euros and Pounds sterling).
DYNEPO - Anemia associated with chronic kidney disease
In July 2008 Shire announced that it had made the decision to cease the commercialization of DYNEPO, effective at the end of 2008, and recorded charges of $149.9 million to cover intangible asset impairment, inventory write downs and other exit costs. Sales for the year to December 31, 2008 were $20.9 million (2007: $14.2 million).
Human Genetic Therapies
ELAPRASE - Hunter syndrome
Sales for the year to December 31, 2008 were $305.1 million, an increase of 68% compared to the same period in 2007 (2007: $181.8 million). The sales growth was driven by increased unit sales across all regions where ELAPRASE is sold: Europe, North America, Latin America and Asia Pacific. On a constant exchange rate basis, sales increased by 64%.
REPLAGAL - Fabry disease
Sales for the year to December 31, 2008 were $176.1 million, an increase of 22% compared to the same period in 2007 (2007: $143.9 million). The sales growth was primarily driven by increased unit sales in Europe and Asia Pacific. On a constant exchange rate basis, sales rose by 19%.
FIRAZYR - HAE
During the second half of 2008 FIRAZYR was launched in some countries in Europe, and sales of $0.5 million were recognized (2007: $nil). Launches will continue across Europe through 2009 as reimbursement negotiations successfully conclude. FIRAZYR has orphan exclusivity in the EU until 2018.
3. Royalties
Royalty revenue decreased by 1% to $245.5 million for the year ended December 31, 2008 (2007: $247.2 million). The following table provides an analysis of Shire’s royalty income:
3TC - HIV infection and AIDS
Royalties from sales of 3TC for the year to December 31, 2008 were $140.2 million, a decrease of 4% compared to the same period in 2007 (2007: $145.3 million). Excluding favorable foreign exchange movements of 2%, there has been a decline of 6% compared to the same period in 2007.
Shire receives royalties from GSK on worldwide 3TC sales. GSK’s worldwide sales of 3TC for the year to December 31, 2008 were $1,060 million, a decrease of 5% compared to the same period in 2007 (2007: $1,110 million), but a decrease of approximately 7% on a constant exchange rate basis. While the nucleoside analogue market for HIV has continued to grow, competitive pressures within the market have increased, leading to a decline in 3TC sales.
Information on patent litigation relating to 3TC can be found in our filing with the SEC on our Annual Report on Form 10-K for the year to December 31, 2007.
ZEFFIX - Chronic hepatitis B infection
Royalties from sales of ZEFFIX for the year to December 31, 2008 were $40.3 million, a decrease of 2% compared to the same period in 2007 (2007: $41.0 million). On a constant exchange rate basis, royalties from sales of ZEFFIX fell 8%.
OTHER
Other royalties are primarily in respect of REMINYL and REMINYL XL (known as RAZADYNE and RAZADYNE ER in the US), for the symptomatic treatment of mild to moderately severe dementia of the Alzheimer’s type. The range is marketed worldwide (excluding the UK and the Republic of Ireland where Shire has exclusive marketing rights) by Janssen Pharmaceutical N.V., an affiliate of Johnson & Johnson.
Sales of the REMINYL/RAZADYNE range continue to grow in most countries, however the entry of generic versions of RAZADYNE and RAZADYNE ER into the US market has significantly decreased sales in that region. This decline was expected and is included in our forecasts.
Information on the RAZADYNE patent litigation (which rendered the relevant patent invalid in August 2008) and RAZADYNE ER patent litigation (which is ongoing) can be found in our filings with the SEC in our Annual Report on Form 10-K for the year to December 31, 2007 and in our Quarterly Report on Form 10-Q for the period ended September 30, 2008.
The Cost of product sales increased to $408.0 million for the year to December 31, 2008 (15% of product sales), from $320.3 million in the corresponding period in 2007 (15% of product sales).
For the year to December 31, 2008 Cost of product sales included charges of $48.8 million (2% of product sales) (2007: $nil) relating to the write-down of inventory and exit costs for DYNEPO, which the Company has decided to stop commercializing, and depreciation of $16.2 million (2007: $11.8 million). Excluding these charges Cost of product sales as a percentage of product sales in the year to December 31, 2008 decreased by 2 percentage points compared to 2007 due to the impact of price increases on the Company’s product sales and favorable changes in product mix.
R&D expenditure decreased to $526.6 million for the year to December 31, 2008 (19% of product sales), from $576.4 million in the year to December 31, 2007 (27% of product sales). The year to December 31, 2007 included up-front and milestone payments for in-licensed products of $155.9 million representing 7% of product sales.
After the exclusion of the charges outlined in the table above, R&D expenditure increased by $103.0 million over the same period in 2007, although decreasing as a percentage of product sales to 18% (2007: 19% of product sales). Contributing to the increase in R&D expenditure in 2008 over 2007 were projects in-licensed and acquired since the second half of 2007, including PLICERA, SPD550, AMIGAL, FIRAZYR and METAZYM, together with Phase 3(b) and Phase 4 studies to support new product launches.
SG&A expenses increased to $1,422.9 million for the year to December 31, 2008 from $1,178.8 million in the year to December 31, 2007. After the exclusion of certain costs as outlined in the table above, Non GAAP SG&A decreased as a percentage of product sales to 41% (2007: 46% of product sales), as sales from Shire’s new product portfolio grew at a faster rate than associated expenses. Contributing to the increase in SG&A expenditure was an increase in sales and marketing spend on new products.
Intangible asset amortization and impairment charges increased by 135% to $223.3 million in 2008 (2007: $95.0 million) due to intangible asset impairments of $97.1 million (2007: $1.1 million), including $94.6 million for DYNEPO in 2008, and increased amortization due primarily to a full year’s charge for VYVANSE of $55.8 million in 2008 (2007: $28.9 million).
Integration costs
For the year to December 31, 2008 the Company recorded integration costs of $10.3 million in respect of Jerini, primarily being acquisition related advisory fees incurred by Jerini and costs associated with the integration of Jerini into the Shire group (2007: $1.3 million relating to the New River acquisition).
Gain on sale of product rights
For the year to December 31, 2008 Shire recognized gains of $20.7 million on the sale of product rights, primarily relating to the sale of non-core products to Almirall in 2007, for which some gains were deferred at December 31, 2007 pending the transfer of relevant consents. In the year to December 31, 2007 Shire recognized gains on the sale of product rights of $127.8 million, of which $114.8 million was for the products sold to Almirall.
In-process R&D (“IPR&D”)
During the year to December 31, 2008 the Company recorded an IPR&D charge of $263.1 million (2007: $1,866.4 million). The charge in 2008 related to FIRAZYR in those markets outside of the EU ($128.1 million) which had not been approved by the relevant regulatory authorities at the acquisition date, and for METAZYM ($135.0 million). In the year to December 31, 2007 the Company recorded an IPR&D charge of $1,866.4 million in respect of development projects acquired with New River, including VYVANSE for use in adults in the US market, which at the time of acquisition had yet to be approved by the FDA.
Interest income
For the year to December 31, 2008 Shire received interest income of $25.5 million (2007: $50.6 million). Interest income primarily relates to interest received on cash and cash equivalents. Interest income for the year to December 31, 2008 is lower than the same period in 2007 due to lower average cash and cash equivalent balances and lower average interest rates.
Interest expense
For the year to December 31, 2008 Shire incurred interest expense of $139.0 million (2007: $70.8 million):
Interest expense for the year to December 31, 2008 includes $87.3 million (2007: $28.1 million) in respect of the TKT appraisal rights litigation. This litigation was settled in November 2008.
Prior to reaching this settlement, the Company accrued interest based on a reasonable estimate of the amount that may be awarded by the Court to those former TKT shareholders who requested appraisal. This estimate of interest was based on Shire’s cost of borrowing. Between the close of the merger and November 5, 2008 the Company applied this interest rate on a quarterly compounding basis to the $419.9 million of consideration to calculate its provision for interest.
Upon reaching agreement in principle with all the dissenting shareholders, the Company determined that settlement had become the probable manner through which the appraisal rights litigation would be resolved. Under current law, (although not applicable in this case because the merger was entered into before the relevant amendment to the law became effective) the court presumptively awards interest in appraisal rights cases at a statutory rate that is 5 percentage points above the Federal Reserve discount rate (as it varies over the duration of the case). In connection with the settlement, the Company agreed to an interest rate that approximates to this statutory rate. Based on the settlement, the Company amended the method of determining its interest provision to reflect this revised manner of resolution, and recorded additional interest expense of $73.0 million in its consolidated financial statements for the year to December 31, 2008 on reaching settlement with the dissenting shareholders. Further information on the settlement of this litigation can be found in our most recent Quarterly Report on Form 10-Q for the period to September 30, 2008.
In 2007 interest expense included a $7.9 million write-off of deferred financing costs on repayment of term loans used to fund the acquisition of New River following the issue of the $1.1 billion convertible bonds in May 2007.
Other (expenses)/income, net for the year to December 31, 2008 includes other than temporary impairment charges in respect of available f
