Shire Reports Full Year 2016 Results With Record Revenue; Positioned For Continued Strong Growth Driven By Best-In-Class Rare Disease Pipeline

Baxalta integration progressing ahead of schedule; Shire now the world leader in rare diseases

Shire plc (Shire) (LSE: SHP, NASDAQ: SHPG) announces unaudited results for the year ended December 31, 2016.

 Full Year Non GAAP Financial Highlights 2016[1] Growth[1] CER[1][2] Product sales $10,886 million +78% +79% Product sales excluding legacy Baxalta $6,998 million +15% +15% Total revenues $11,397 million +78% +78% Operating income from continuing operations $963 million (32%) Non GAAP operating income[2] $4,417 million +59% +57% Net income margin[3][4] 3% (17ppc) Non GAAP EBITDA margin[2][4] 39% (4ppc) Net income $327 million (75%) Non GAAP net income[2] $3,391 million +47% Diluted earnings per ADS[5] $1.27 (81%) Non GAAP diluted earnings per ADS[2][5] $13.10 +12% +11% Net cash provided by operating activities $2,659 million +14% Non GAAP cash generation[2] $3,464 million +43% Non GAAP free cash flow[2] $2,103 million (5%) 

^[1] Results include Baxalta Inc. (Baxalta) (acquired on June 3, 2016) and Dyax Corp. (Dyax) (acquired on January 22, 2016), unless otherwise noted. Percentages compare to equivalent 2015 period. ^[2] The Non GAAP financial measures included within this release are explained on pages 28 - 29, and are reconciled to the most directly comparable financial measures prepared in accordance with US GAAP on pages 22 - 24. ^[3] US GAAP net income as a percentage of total revenues. ^[4] Percentage point change (ppc). ^[5] Diluted weighted average number of ordinary shares 776.2m.

Financial Highlights

• Delivered product sales growth of 78% to $10.9 billion, driven by record legacy Shire product sales and inclusion of legacy Baxalta sales since June 2016.
• Achieved combined pro forma sales growth of 11% (12% at Non GAAP CER); 15% sales growth (15% at Non GAAP CER) for legacy Shire and 6% pro forma sales growth (8% at Non GAAP CER) for legacy Baxalta.
• Generated Non GAAP diluted earnings per ADS of $13.10 (11% Non GAAP CER growth), at top end of financial guidance.
• Delivered strong Non GAAP cash generation in Q4 2016 enabling a $0.9 billion reduction in Non GAAP net debt.

Product and Pipeline Highlights

• Expanded commercial portfolio with 4 new product launches: XIIDRA, ONIVYDE, VONVENDI and CUVITRU.
• Delivered strong performance for XIIDRA in dry eye disease, capturing 19% U.S. market share within four months since launch.
• Progressed pipeline of innovative, novel therapies with approximately 20 programs in Phase 3 or registration.
• Received Prescription Drug User Fee Act (PDUFA) date of June 20, 2017 for SHP465 in Attention Deficit Hyperactivity Disorder (ADHD); completed enrollment for SHP643 in prophylaxis of Hereditary Angioedema (HAE) with results expected in the first half of 2017.

Integration Highlights

• Completed Dyax integration.
• Progressed Baxalta integration with operating expense synergy initiatives ahead of schedule and legacy Baxalta products transitioning quickly onto Shire’s commercial platform.

Flemming Ornskov, M.D., M.P.H., Shire Chief Executive Officer, commented:

“2016 was a transformational year for Shire as we became the world leader in rare diseases. Our innovative portfolio and sharp focus on commercial excellence enabled us to generate double digit pro forma top-line growth, with reported sales of $10.9 billion, while materially advancing the pipeline, successfully integrating Dyax and progressing the Baxalta integration ahead of schedule.

“In August we launched XIIDRA in the U.S. with an exceptional new drug launch, demonstrating our strength in commercial excellence and capturing 19% of market share within four months. This marks an outstanding entry into ophthalmics and we aim to further build a leadership position in this therapeutic area.

“With multiple product launches planned in 2017, we remain focused on execution and expect to generate strong top- and bottom-line growth. Our pipeline has never been stronger with multiple programs in Phase 3 or registration. We remain extremely optimistic about Shire’s long-term growth prospects.”

FINANCIAL SUMMARY - FULL YEAR 2016 COMPARED TO FULL YEAR 2015

Revenues

• Product sales increased 78% (79% at Non GAAP CER) to $10,886 million (2015: $6,100 million), primarily due to including $3,887 million of legacy Baxalta sales.

• Product sales excluding legacy Baxalta increased 15% (15% at Non GAAP CER) with all legacy Shire franchises exhibiting double digit growth, with Genetic Diseases up 12%, Neuroscience up 13% and Internal Medicine up 17%. In addition, we launched XIIDRA in August 2016 and our Ophthalmology franchise contributed sales of $54 million.

• Royalties and other revenues increased 61% to $511 million, as the second half of 2016 benefited from additional revenue acquired with Baxalta, primarily related to contract manufacturing activities.

Operating results

• Operating income decreased 32% to $963 million (2015: $1,420 million), primarily due to the impact of acquisition accounting, including higher amortization of inventory fair value adjustments and acquired intangible assets, combined with higher integration and acquisition costs, partially offset by lower impairment charges related to research and development (R&D) programs.

• Non GAAP operating income increased 59% to $4,417 million (2015: $2,786 million), primarily due to including Baxalta’s operating income and higher revenue from legacy Shire products.

• Non GAAP EBITDA margin decreased to 39% (2015: 43%). The decrease was primarily due to the impact of lower margin product franchises acquired with Baxalta and XIIDRA launch and promotional costs.

Earnings per share (EPS)

• Diluted earnings per American Depositary Shares (ADS) decreased 81% to $1.27 (2015: $6.59). The decrease was primarily due to lower operating income resulting from the impact of acquisition accounting and higher integration and acquisition costs, combined with the impact of additional shares issued as consideration for the Baxalta transaction.

• Non GAAP diluted earnings per ADS increased 12% to $13.10 (2015: $11.68), as higher Non GAAP operating income more than offset the impact of additional shares issued as consideration for the Baxalta transaction.

Cash flows

• Net cash provided by operating activities increased 14% to $2,659 million (2015: $2,337 million), primarily due to strong cash receipts from higher sales, partially offset by higher tax and interest payments, costs related to the Baxalta integration and a payment associated with the termination of a biosimilar collaboration acquired with Baxalta.

• Non GAAP cash generation, increased 43% to $3,464 million (2015: $2,422 million), primarily due to strong cash receipts from higher sales, partially offset by costs related to the Baxalta integration and a payment associated with the termination of a biosimilar collaboration acquired with Baxalta.

• Non GAAP free cash flow, decreased 5% to $2,103 million (2015: $2,222 million), despite the strong increase in net cash provided by operating activities noted above, as continued investment in manufacturing operations resulted in an increase in capital expenditures of $531 million.

Debt

• Non GAAP net debt at December 31, 2016 was $22,439 million (December 31, 2015: $1,459 million), representing aggregate long and short term borrowings of $22,614 million, and other debt, primarily capital leases, of $354 million, partially offset by cash and cash equivalents of $529 million. The increase in net debt is primarily due to debt used to fund the acquisitions of Baxalta and Dyax and borrowings assumed from Baxalta.

OUTLOOK

We expect 2017 to be another strong year for Shire, building on our excellent financial performance in 2016.

In addition to the guidance in the table below, we are providing depreciation and capital expenditure 2017 guidance following the Baxalta acquisition on June 3, 2016. We expect depreciation expense to be $400 - $450 million and capital expenditure to be approximately $1 billion in 2017 reflecting our larger footprint and important investments to support our growth aspirations.

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