SHIRE PLC - 2016 Annual Report – DTR 6.3.5 Disclosure

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Investor Relations
Ian Karp	ikarp@shire.com	+1 781 482 9018
Robert Coates	rcoates@shire.com	+44 1256 894874

NOTES TO EDITORS

About Shire

Shire is the leading global biotechnology company focused on serving people with rare diseases. We strive to develop best-in-class products, many of which are available in more than 100 countries, across core therapeutic areas including Hematology, Immunology, Neuroscience, Ophthalmics, Lysosomal Storage Disorders, Gastrointestinal / Internal Medicine / Endocrine and Hereditary Angioedema; and a growing franchise in Oncology.

Our employees come to work every day with a shared mission: to develop and deliver breakthrough therapies for the hundreds of millions of people in the world affected by rare diseases and other high-need conditions, and who lack effective therapies to live their lives to the fullest.

www.shire.com

Forward-Looking Statements

Statements included herein that are not historical facts, including without limitation statements concerning future strategy, plans, objectives, expectations and intentions, the anticipated timing of clinical trials and approvals for, and the commercial potential of, In-line or pipeline products, 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, Shire’s results could be materially adversely affected. The risks and uncertainties include, but are not limited to, the following:

• Shire’s products may not be a commercial success;

• increased pricing pressures and limits on patient access as a result of governmental regulations and market developments may affect Shire’s future revenues, financial condition and results of operations;

• Shire conducts its own manufacturing operations for certain of its products and is reliant on third-party contract manufacturers to manufacture other products and to provide goods and services. Some of Shire’s products or ingredients are only available from a single approved source for manufacture. Any disruption to the supply chain for any of Shire’s products may result in Shire being unable to continue marketing or developing a product or may result in Shire being unable to do so on a commercially viable basis for some period of time;

• the manufacture of Shire’s products is subject to extensive oversight by various regulatory agencies. Regulatory approvals or interventions associated with changes to manufacturing sites, ingredients or manufacturing processes could lead to significant delays, an increase in operating costs, lost product sales, an interruption of research activities or the delay of new product launches;

• certain of Shire’s therapies involve lengthy and complex processes, which may prevent Shire from timely responding to market forces and effectively managing its production capacity;

• Shire has a portfolio of products in various stages of research and development. The successful development of these products is highly uncertain and requires significant expenditures and time, and there is no guarantee that these products will receive regulatory approval;

• the actions of certain customers could affect Shire’s ability to sell or market products profitably.

Fluctuations in buying or distribution patterns by such customers can adversely affect Shire’s revenues, financial conditions or results of operations;

• Shire’s products and product candidates face substantial competition in the product markets in which it operates, including competition from generics;

• adverse outcomes in legal matters, tax audits and other disputes, including Shire’s ability to enforce and defend patents and other intellectual property rights required for its business, could have a material adverse effect on the combined company’s revenues, financial condition or results of operations;

• inability to successfully compete for highly qualified personnel from other companies and organizations;

• failure to achieve the strategic objectives with respect to Shire’s acquisition of NPS Pharmaceuticals, Inc., Dyax Corp. (“Dyax”) or Baxalta Inc. (“Baxalta”) may adversely affect Shire’s financial condition and results of operations;

• Shire’s growth strategy depends in part upon its ability to expand its product portfolio through external collaborations, which, if unsuccessful, may adversely affect the development and sale of its products;

• a slowdown of global economic growth, or economic instability of countries in which Shire does business, as well as changes in foreign currency exchange rates and interest rates, that adversely impact the availability and cost of credit and customer purchasing and payment patterns, including the collectability of customer accounts receivable;

• failure of a marketed product to work effectively or if such a product is the cause of adverse side effects could result in damage to the Shire’s reputation, the withdrawal of the product and legal action against Shire;

• investigations or enforcement action by regulatory authorities or law enforcement agencies relating to Shire’s activities in the highly regulated markets in which it operates may result in significant legal costs and the payment of substantial compensation or fines;

• Shire is dependent on information technology and its systems and infrastructure face certain risks, including from service disruptions, the loss of sensitive or confidential information, cyber-attacks and other security breaches or data leakages that could have a material adverse effect on Shire’s revenues, financial condition or results of operations;

• Shire incurred substantial additional indebtedness to finance the Baxalta acquisition, which may decrease its business flexibility and increase borrowing costs;

• difficulties in integrating Dyax or Baxalta into Shire may lead to the combined company not being able to realize the expected operating efficiencies, cost savings, revenue enhancements, synergies, or other benefits at the time anticipated or at all; and

• a further list and description of risks, uncertainties and other matters can be found on pages 55 to 65 of this Annual Report.

All forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by this cautionary statement. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Except to the extent otherwise required by applicable law, we do not undertake any obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

APPENDIX

Contents
1. Chairman’s review
2. Chief Executive Officer’s review
3. Review of our business
4. Principal risks and uncertainties
5. Directors’ responsibility statement

1. Chairman’s Review

This year has been one of transformation for Shire — one where we are now recognized as the world leader in the treatment of rare diseases.

With the acquisitions of Dyax and Baxalta, we have grown from 6,000 employees at the start of 2016 to approximately 24,000 today, and have expanded the reach of our global sales from 72 to over 100 countries. During this time, Shire launched four new drugs, including XIIDRA®, the first and only product approved in the U.S. to treat both the signs and symptoms of dry eye disease. We also expanded and progressed our pipeline so we now have roughly 40 programs in the clinic with about 20 in the later stages of development. These accomplishments set the stage for Shire’s continued growth and are just a few examples of the many achievements highlighted in this Annual Report.

The patient is at the center of everything we do at Shire. This drives how we discover, develop and deliver new medicines, and guides how we interact and support our patient communities. During 2016, Shire provided a multi-year grant to the SeriousFun Children’s Network to enable young people with rare illnesses to have a life-changing experience at summer camp and to help their families bond through Family Weekend programs. Many families have told us about the extraordinary impact of these experiences, a sentiment echoed by our employees who volunteered with SeriousFun.

Shire is also a leader in responsibility and sustainability. The company was recognized by Scrip’s Pharma as “Company of the Year” in 2016. We were once again included in the FTSE4Good Index, which measures globally recognized standards for corporate responsibility. Newsweek ranked Shire as the number one greenest company in its 2016 Green Rankings. Our commitment to transparency was recognized by AllTrials, as Shire was the only company to have published results for all clinical trials completed during the past 10 years.

Our business is not without its challenges. We operate in an environment with significant political and market volatility. Shire’s strategy is to deliver products that are innovative and differentiated, enabling us to provide value to patients and payers, while creating value for shareholders.

I would like to thank Flemming Ornskov, Shire’s CEO, and his leadership team for their vision, passion and exceptional performance. We are now a global industry leader and forward-thinking organization. This is driven by the company’s focus on innovation and high performance. I would also like to acknowledge Shire employees for their commitment to the company, and to patients, especially during a time of major transformation. I particularly want to recognize the thousands of Shire employees who participated in Shire’s Global Day of Service, helping to improve local communities.

During the year, the Board played an important role, especially as the company completed the Baxalta acquisition, the largest in our history. My sincerest thanks to fellow Board members for their many contributions. In 2016, Gail Fosler and Albert Stroucken, formerly Baxalta Directors, joined our Board as Non-Executive Directors. In early 2017, Ian Clark, former CEO of Genentech, also joined the Shire Board. You can read more about the Board in the Governance section, beginning on page 66.

Looking forward, our priorities are to progress revenue growth, further develop the product pipeline, and  continue to integrate the Baxalta business while reducing the associated debt. We will continue to be responsible and responsive to our communities while remaining focused on delivering long-term value to shareholders. I am confident we have the right team, the right strategy and the right resources in place to accomplish these goals. It is my privilege to be a part of this organization.

Susan Kilsby
Chairman

2. Chief Executive Officer’s Review

A game changing year

2016 was a transformational year for Shire. We took a big step forward in serving people with rare diseases with the acquisition of Baxalta, which added three new therapeutic areas including category leadership in hematology and immunology and a growing franchise in oncology. As a result of the acquisition and strong performance across our combined portfolio, we achieved record revenue of $11.4 billion, almost double 2015’s $6.4 billion.

Since successfully navigating and finalizing the Baxalta acquisition, we are ahead of plan on the massive task of integration and delivering promised synergies. We are now approximately 24,000 people strong and are bringing our products to patients in over 100 countries.

We also completed the $6 billion acquisition of Dyax to expand our industry leading portfolio in Hereditary Angioedema (“HAE”) and we in-licensed from Pfizer a very promising candidate for Crohn’s disease and ulcerative colitis.

Our employees did an outstanding job staying focused and delivering for patients during a time of significant change. In 2016, we also launched truly innovative products to address high unmet medical needs.

• The launch of XIIDRA, the only prescription eye drop approved in the U.S. for the treatment of signs and symptoms of   Dry eye disease, was another big success. We had an exceptional new drug launch, demonstrating our strength in commercial excellence and capturing 19 percent 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.

• We launched CUVITRU™ in the U.S., a convenient at-home, subcutaneous treatment for primary immunodeficiency. Convenience is important to our patients and their families because many of our medicines are given as infusions or injections, through various devices and delivery methods.

• Outside the U.S., we gained EU Marketing Authorization of ONIVYDE® for the treatment of metastatic adenocarcinoma of the pancreas in adult patients who have had gemcitabinebased therapy. ONIVYDE is the first and only approved treatment option for this patient population.

These new therapies exemplify our commitment to new-to-class, potentially best-in-class, or novel treatments for rare diseases.

All in all, 2016 was a standout year where we achieved our goal of becoming the leading biotech company focused on rare diseases. Today, 75 percent of our pipeline and 65 percent of our sales are in rare diseases.

A unique need — and model — for biotech innovation

Rare diseases, most of which are genetic and are present throughout a person’s entire life, pose a significant medical and economic burden for patients, communities and healthcare systems. There are more than 7,000 known rare diseases impacting 350 million people worldwide. Millions more have specialized conditions. What these figures do not reflect are the untold number of mothers, fathers, friends and family who watch a loved one struggle with health challenges that, in many cases, cannot be adequately addressed today. Nearly 50 percent of the time these loved ones are children.

What’s more, delays to diagnosis are commonly experienced by patients with rare diseases, and can lead to serious consequences for their health, as well as the wider healthcare system.

These facts are what drive our unique model for biotech innovation. It is a mix of internal knowledge,  capabilities and research, combined with collaborations with external partners, and supplemented by business development and M&A. We are very flexible in our approach, combining internal and external to create the best routes to innovation.

At the same time, we are extremely focused on growing and leading in our chosen therapeutic areas. We see our patient communities as key partners in innovation. Close, long-term relationships with patients, their doctors and caregivers make all the difference in finding solutions for the challenges of their often-lifetime conditions.  We have also significantly expanded our support services in helping patient’s gain access to and stay on our medicines.

An exciting late-stage clinical portfolio

Our pipeline has transformed in recent years, and now includes compounds with potential rare disease indications at all stages of development. Most of the products are new-to-class, potentially best-in-class or novel. We have 17 Phase 3 programs and most are expected to launch by the end of 2020, if approved. These include:

• SHP465, the first new treatment in almost a decade for Attention Deficit Hyperactivity Disorder (“ADHD”).

• SHP621, recently granted breakthrough therapy designation by the U.S. FDA for eosinophilic esophagitis, a serious, chronic rare disease.

• SHP643, recently granted breakthrough therapy designation by the U.S. FDA for hereditary angioedema (“HAE”). If we are able to replicate the clinical data we saw in earlier trials and if SHP643 is approved, we believe this product has the potential to be an advancement in the way HAE patients are treated, offer significant benefit to patients, and serve as a key growth driver for Shire’s business.

• SHP607, our treatment for neonatal complications, has had positive Phase 2 results and is now going into Phase 3, with the potential to significantly impact the health of premature infants.

With approximately 40 programs in the clinic and about 20 in the later stages of development, we now have the deepest, and most innovative, pipeline in our 30-year history.

A commitment to doing the right thing

Our employees lead the way in ensuring we have a positive impact on society.  In addition to their day-to-day focus on patients and a commitment to doing the right thing at work, they are also involved in our communities. In 2016, approximately 6,500 employees participated in our Global Day of Service in 150 locations around the world. Together, they donated over 25,000 hours of their time. This was for one event. We know our people and teams are dedicated to helping others throughout the year and also to using our resources in a responsible way. In fact, the company has received awards and recognition for our responsibility efforts and I encourage you to read on in this report to learn more.

It is an honor to work alongside our talented and dedicated employees and I’m thrilled that Shire is a place where people like to work, where we not only attract the best at all levels but also invest in their ongoing education and development. We saw a surge in job applications in 2016, also mirroring the greater recognition we have gained in our industry as a biotech leader.

Building on our leading position

We have a strong track record of excellent commercial execution and delivering on short and medium-term financial promises to our shareholders. We like to set stretch goals and the integration of Baxalta has not distracted us from this focus.

As we grow, we want to retain the touch and feel of a small biotech so we have the benefits both of scale and agility. It’s about very simple, very flat and rapid decision-making. We support this through innovation and operational excellence, through the interplay between our key strategic centers in Zug, Boston and Dublin, and through our In-line, Pipeline and Corporate Committees.

Speed matters, especially to the patients who are waiting for treatments, and that’s why we’ve built a fast-paced, entrepreneurial, international culture where we give people freedom and opportunity to excel while also setting a high bar for being ethical and responsible.

Our teams will continue to support people with rare diseases through every step of their journey. This includes targeted diagnostic approaches to help improve the pathway to diagnosis, assistance programs for those with limited financial resources and personalized life-long programs that support on-going treatment and enhance quality of life. We also remain committed to working alongside partners, doctors, patient advocacy organizations, governments and payers to deliver value and meaningful outcomes that help ease the long-term economic burden of these diseases for patients, communities and healthcare systems.

While each rare disease community is small on its own; together they make one large rare disease population in need of solutions. Shire is in a leading position to provide these solutions on a global scale, enabling more patients and families around the world to live their lives to the fullest.

Thank you for your continued support.

Flemming Ornskov, MD, MPH
Chief Executive Officer

3. Financial Review

Overview

The Company has grown both organically and through acquisition, completing a series of major  transactions that have brought therapeutic, geographic and pipeline growth and diversification. The Company will continue to conduct its own research and development, focused on rare diseases, as well as evaluate companies, products and pipeline opportunities that offer a strategic fit and have the potential to deliver value to all of the Company’s stakeholders: patients, physicians, policy makers, payers, partners, investors and employees.

The Company’s purpose is to enable people with life-altering conditions to lead better lives. The Company will execute on its purpose through its strategy and business model. For further details of Shire’s strategy and business model, refer to pages 12 and 14.

Through deep understanding of patients’ needs, the Company is able to:

• serve patients with high unmet needs in select, commercially attractive specialty therapeutic areas;

• drive optimum performance of its marketed products — to serve patients today; and

• build its pipeline of innovative specialist treatments through both R&D and Corporate Development activities to enable the Company to serve patients in the future.

Shire’s in-licensing and acquisition efforts are focused on products in specialist markets with strong intellectual property protection or other forms of market exclusivity 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.

Company revenues, expenditures and net assets are attributable to the R&D, manufacture, sale and distribution of pharmaceutical products within one reportable segment. The Company also earns royalties (where Shire has out-licensed products to third-parties) which are recorded as royalty revenues.

Revenues are derived primarily from two sources — sales of the Company’s own products and royalties:

• 95.5 percent (2015: 95.0 percent) of total revenues are derived from Product sales; and

• 4.5 percent (2015: 5.0 percent) of total revenues are derived from royalties.

The markets in which the Company conducts its business are intensely competitive and highly regulated.

The healthcare industry is also experiencing:

• pressure from governments and healthcare providers to keep prices low while increasing access to drugs;

• increased discounts, which reduce revenue, due to the population of “baby boomers” covered under Medicare, specifically those beneficiaries receiving drug cost offset through the Medicare Part D  Coverage Gap (the “Donut Hole”);

• increasing challenges from third-party payers for products to have demonstrable clinical benefit, with pricing and reimbursement approval becoming increasingly linked to a product’s clinical effectiveness and impact on overall costs of patient care;

• increased R&D costs, because development programs are typically larger and take longer to get approval from regulators;

• challenges to existing patents from generic manufacturers;

• governments and healthcare systems favoring earlier entry of low cost generic drugs; and

• higher marketing costs, due to increased competition for market share.

Shire’s strategy has been developed to address these industry-wide competitive pressures. This strategy has resulted in a series of initiatives in the following areas:

Markets

Shire’s current portfolio of approved products spans seven key therapeutic areas (“TAs”): Hematology, Genetic Diseases (HAE/LSD), Neuroscience, Immunology, Internal Medicine, Oncology and Ophthalmology. In addition, Shire has a number of marketed products for other TAs from which it generates Product sales or royalties. In 2016, the contribution of each TA to overall Product sales was as follows:

	Product sales $’M	Percentage %
Hematology	2,240.8	20.6
Genetic Disease	2,698.0	24.8
Neuroscience	2,490.5	22.9
Immunology	1,516.1	13.9
Internal Medicine	1,755.5	16.1
Oncology	130.5	1.2
Ophthalmology	54.4	0.5
	10,885.8	100.0

Shire has grown in part through acquisition which has brought therapeutic, geographic and pipeline growth and diversification.

The acquisition of Baxalta in 2016 added the Hematology, Immunology and Oncology franchises and enabled Shire to become the global leader in rare diseases and highly specialized conditions.

The acquisition of Dyax in January 2016, with their lead pipeline product, SHP643, and marketed product KALBITOR, expanded and extended Shire’s industry-leading HAE portfolio (FIRAZYR and CINRYZE).

In July 2016, Shire licensed the global rights to all indications for SHP647 from Pfizer Inc. SHP647 is an investigational biologic being evaluated for the treatment of moderate-to-severe inflammatory bowel disease.

In 2015, Shire acquired NPS Pharma, Meritage Pharma and Foresight.

The acquisition of NPS Pharma added global rights to an innovative product portfolio with multiple growth catalysts, including GATTEX/REVESTIVE and NATPARA. The acquisition of Meritage Pharma provided global rights to SHP621, a Phase 3 ready asset for the treatment of adolescents and adults with EoE, a rare, chronic inflammatory GI disease. This builds upon the Company’s rare disease and GI commercial infrastructure and expertise. With the acquisition of Foresight Shire acquired the global rights to SHP640

(topical ophthalmic drops combining 0.6 percent povidone iodine (PVP-I) and 0.1 percent dexamethasone), a potential therapy in late-stage development for the treatment of infectious conjunctivitis, an ocular surface condition commonly referred to as pink eye. This acquisition has a clear strategic fit with XIIDRA, which is approved in the U.S. for the treatment of the signs and symptoms of dry eye disease, and further demonstrates Shire’s commitment to building a leadership position in ophthalmics.

In 2016, Shire  derived 32 percent (2015: 27 percent) of Product sales from outside of the U.S. Shire has ongoing commercialization and late-stage development activities, which are expected to further supplement the diversification of revenues in the future, including the following:

• continued launch of INTUNIV, REVESTIVE and ONIVYDE across Europe;

• review of MAAs for NATPAR and ADYNOVI in the EU;

• review of NDA for SHP465 in U.S.;

• submission of CALPEG NDA for ALL in U.S.;

• submission of VONVENDI MAA in Europe;

• headline data from registration studies for SHP643; and

• geographic expansion of XIIDRA with submissions in other key markets.

R&D

Shire’s R&D efforts are focused on six therapeutic areas: Neuroscience, Ophthalmology, Hematology, Oncology, Immunology, GI/Metabolic/Endocrinology Diseases. Shire concentrates its resources on obtaining regulatory approval for later stage pipeline products within these therapeutic areas and focuses its early stage research activities in rare diseases.

Evidence of the successful progression of the late stage pipeline can be seen in the granting of approval and associated launches of the Company’s products over the last three years. In this time, several products have received regulatory approval including: in the U.S., XIIDRA and CUVITRU in 2016, VONVENDI,  DYNOVATE, NATPARA and VYVANSE for BED in 2015, HYQVIA and OBIZUR in 2014; in the EU, ONIVYDE and CUVITRU in 2016, ELVANSE/TYVENSE for adults, INTUNIV for children and adolescents and OBIZUR in 2015.

Shire’s management reviews direct costs for all R&D projects by development phase.

Shire’s R&D costs in 2016 and 2015 include expense on programs in all stages of development. The following table provides an analysis of the Company’s direct R&D spend categorized by development stage, based upon the development stage of each program as of December 31, 2016 and 2015:

As of December 31	2016 $’M	2015 $’M
Early stage programs	325.7	177.2
Late stage programs	291.1	225.5
Currently marketed products	238.1	178.5
Total	854.9	581.2

Early stage programs include preclinical and research programs. In addition to the above, the Company recorded R&D employee costs of $431.9 million in 2016 (2015: $302.9 million) and other indirect R&D costs of $153.0 million (2015: $679.9 million), comprising mainly depreciation and milestone expense (2015 comprising mainly depreciation and impairment charges).

For a discussion of the Company’s current development projects see pages 20 to 21.

Patents and Market Exclusivity

The loss or expiration of patent protection or regulatory exclusivity with respect to any of the Company’s major products could have a material adverse effect on the Company’s revenues, financial condition and results of operations, as generic or biosimilar products may enter the market. Companies selling generic products often do not need to complete extensive clinical studies when they seek registration of a generic or biosimilar product and accordingly, are generally able to sell a generic version of the Company’s products at a much lower price.

As expected, in 2009, Teva and Impax commenced commercial shipments of their authorized generic versions of ADDERALL XR, which led to lower sales of branded ADDERALL XR compared to the periods prior to the authorized generic launches.

In 2014 and 2015, generic versions of the Company’s INTUNIV product was launched, which led to lower sales of INTUNIV product compared to the period before loss of exclusivity.

Shire is engaged in various legal proceedings with generic manufacturers with respect to its VYVANSE and LIALDA patents. For information regarding current patent litigation, see Note 26, Legal and Other Proceedings, to the Consolidated Financial Statements.

Corporate Development

Shire focuses its corporate development activity on the acquisition and in-licensing of businesses, products or compounds which offer a strategic fit and have the potential to deliver demonstrable value to all of the Company’s stakeholders.

Recent mergers and acquisitions

2016:

• On January 22, 2016, Shire completed the acquisition of Dyax which expanded and extended Shire’s industry-leading HAE portfolio by adding the currently approved product, KALBITOR for the treatment of sudden attacks of HAE in people 12 years of age and older and SHP643, a Phase 3 program for the treatment of HAE.

• On June 3, 2016, Shire acquired all of the outstanding common stock of Baxalta. Baxalta was a global biopharmaceutical company, focused on developing, manufacturing and commercializing therapies for orphan diseases and underserved conditions in hematology, oncology and immunology. Baxalta added a number of commercially approved products and enhanced Shire’s existing pipeline with a number of drug candidates in different therapeutic areas under different phases of development. For further details, see pages 20 to 21.

2015:

• On February 21, 2015, Shire acquired NPS Pharma, which added global rights to an innovative product portfolio with multiple growth catalysts, including GATTEX/REVESTIVE for the treatment of adults with SBS, a rare GI condition; and NATPARA/NATPAR, the only bioengineered parathyroid hormone therapy for use in the treatment of HPT, a rare endocrine disease.

• On February 18, 2015, Shire acquired Meritage Pharma, which provided the Company with worldwide rights to SHP621 for the potential treatment of adolescents and adults with EoE, a rare, chronic inflammatory GI disease.

• On July 30, 2015, Shire acquired Foresight, which added global rights to SHP640, a Phase 3 ready potential therapy for the treatment of infectious conjunctivitis, an ocular surface condition commonly referred to as pink eye.

Results of operations for the years ended December 31, 2016 and 2015

Financial highlights for the year ended December 31, 2016 are as follows:

Revenues

• Product sales increased by 78 percent to $10,886 million (2015: $6,100 million). This increase was primarily due to including $3,887 million of Baxalta product sales following the acquisition, and double digit growth of existing franchises, with Genetic Diseases up 12 percent, Neuroscience up 13 percent and Internal Medicine up 17 percent. In addition, the Company launched XIIDRA in August 2016 and the Ophthalmology franchise contributed sales of $54 million.

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

Operating results

• Operating income decreased 32 percent to $963 million (2015: $1,420 million), primarily due to the impact of the acquisition of Baxalta, 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 R&D programs.

Earnings per share (“EPS”)

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