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| <NonNumbericText> <div style="font-size:12pt"><p>16. Accounts payable and accrued expenses</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td height="17" width="444" align="left"> </td><td height="17" width="120" align="right"><b>December 31,</b></td><td height="17" width="120" align="right"><b>December 31,</b></td></tr><tr><td height="17" width="444" align="left"> </td><td height="17" width="120" align="right"><b>2009 </b></td><td height="17" width="120" align="right"><b>2008 </b></td></tr><tr><td height="17" width="444" align="left"> </td><td height="17" width="120" align="right"><b>$’M</b></td><td height="17" width="120" align="right"><b> $’M</b></td></tr><tr><td height="11" width="444" align="left"> </td><td height="11" width="120" align="right">________________</td><td height="11" width="120" align="right">________________</td></tr><tr><td height="19" width="444" align="left">Trade accounts payable</td><td height="19" width="120" align="right">79.6 </td><td height="19" width="120" align="right">102.4 </td></tr><tr><td height="19" width="444" align="left">Accrued rebates – Medicaid</td><td height="19" width="120" align="right">188.2 </td><td height="19" width="120" align="right">162.6 </td></tr><tr><td height="19" width="444" align="left">Accrued rebates – Managed care</td><td height="19" width="120" align="right">153.4 </td><td height="19" width="120" align="right">59.9 </td></tr><tr><td height="19" width="444" align="left">Sales return reserve</td><td height="19" width="120" align="right">62.7 </td><td height="19" width="120" align="right">47.1 </td></tr><tr><td height="19" width="444" align="left">Accrued bonuses</td><td height="19" width="120" align="right">66.8 </td><td height="19" width="120" align="right">62.0 </td></tr><tr><td height="19" width="444" align="left">Accrued employee compensation and benefits payable</td><td height="19" width="120" align="right">42.6 </td><td height="19" width="120" align="right">36.7 </td></tr><tr><td height="19" width="444" align="left">Research and development accruals</td><td height="19" width="120" align="right">53.1 </td><td height="19" width="120" align="right">29.3 </td></tr><tr><td height="19" width="444" align="left">Marketing accruals</td><td height="19" width="120" align="right">31.5 </td><td height="19" width="120" align="right">22.1 </td></tr><tr><td height="19" width="444" align="left">Deferred revenue</td><td height="19" width="120" align="right">52.2 </td><td height="19" width="120" align="right">9.6 </td></tr><tr><td height="19" width="444" align="left">Other accrued expenses</td><td height="19" width="120" align="right">199.0 </td><td height="19" width="120" align="right">176.9 </td></tr><tr><td height="11" width="444" align="left"> </td><td height="11" width="120" align="right">________________</td><td height="11" width="120" align="right">________________</td></tr><tr><td height="19" width="444" align="left"> </td><td height="19" width="120" align="right">929.1 </td><td height="19" width="120" align="right">708.6 </td></tr><tr><td height="11" width="444" align="left"> </td><td height="11" width="120" align="right">________________</td><td height="11" width="120" align="right">________________</td></tr></table><p>Accrued Medicaid rebates have increased by $25.6 million to $188.2 million at December 31, 2009 (2008: $162.6 million). There are potentially different interpretations as to how shipments of authorized generic ADDERALL XR to Teva and Impax should be included in the Medicaid rebate calculation pursuant to Medicaid rebate legislation. As a result more than one unit rebate amount (“URA”) is calculable for the purpose of determining the Company’s Medicaid rebate liability to States as a result of authorized generic launch. During 2009 the Company highlighted the different interpretations to Centre of Medicaid Services (“CMS”) and submitted data to CMS for the purpose of computing the URA, based on the Company’s reasonable interpretation of the Medicaid rebate legislation and related guidance. The State Medicaid agencies have invoiced the Company for Medicaid rebates, and the Company has paid these Medicaid rebate invoices, based on this URA. Despite this CMS has the ability to subsequently challenge the Company’s interpretation of the Medicaid rebate legislation, and require an alternative interpretation to be applied (both retrospectively and prospectively), which could result in a significantly higher Medicaid liability. <br /><br />Throughout 2009 the Company’s management has recorded its accrual for Medicaid rebates based on its best estimate of the rebate payable. For the first three quarters of 2009, the Company’s management based this best estimate on an amount that the Company could pay were CMS to challenge the Company’s interpretation and require an alternative interpretation of the Medicaid rebate legislation to be applied. In the fourth quarter of 2009, the Company’s management lowered its best estimate of the Medicaid rebate payable down to be consistent with (i) the Company’s interpretation of the Medicaid rebate legislation, (ii) the Company’s repeated and consistent submission of price reporting to CMS using the Company’s interpretation of the Medicaid rebate legislation, (iii) CMS calculating the URA based on that interpretation, (iv) States submitting Medicaid rebate invoices using this URA and (v) Shire paying these invoices . This change of estimate increased ADDERALL XR product sales by $97.7 million in the fourth quarter of 2009 (of which $73.6 million related to ADDERALL XR sales recognized in the first three quarters of 2009).<br /><br />In determining its best estimate of the Medicaid rebate liability at December 31, 2009 the Company’s management has considered a number of factors taken in combination (including the receipt of a further quarter’s invoices from the States with a URA based on the Company’s interpretation of the Medicaid rebate legislation and related guidance, and the Company’s likely response were CMS to employ an alternative interpretation of the Medicaid rebate legislation). Any future change in the Company’s interpretation which results in a change of estimate (both retrospectively and prospectively) could significantly decrease sales of ADDERALL XR in the period of any such change in estimate. <br /><br />The Company strongly believes that its interpretation of the Medicaid rebate legislation is reasonable and correct. However, CMS could disagree with the Company’s interpretation, and require the Company to apply an alternative interpretation of the Medicaid rebate legislation and pay up to $210 million above the recorded liability. This would represent a URA substantially in excess of the unit sales price of ADDERALL XR and accordingly be in excess of the approximate amount of the full cost to the States of reimbursement for Medicaid prescriptions of ADDERALL XR. Should CMS take such an approach, the Company could seek to limit any additional payments to a level approximating the full, un-rebated cost to the States of ADDERALL XR, or $98 million above the recorded liability. Further, the Company believes it has a strong legal basis supporting its interpretation of the Medicaid rebate legislation, and that there would be a strong basis to initiate litigation to recover any amount paid in excess of its recorded liability. The result of any such litigation cannot be predicted and could result in additional rebate liability above the Company’s current best estimate.<br /><br />Accrued Managed Care rebates have increased by $93.5 million to $153.4 million (2008: $59.9 million), principally due to higher rebates on ADDERALL XR offered to Managed Care Organizations (“MCOs”) from April 1, 2009.</p></div> </NonNumbericText> |
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