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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-29630
SHIRE PHARMACEUTICALS GROUP PLC
(Exact name of registrant as specified in its charter)
England and Wales
- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
East Anton, Andover, Hampshire SP10 5RG, England (Zip Code)
- ------------------------------------------------
(Address of principal executive offices)
44 1264 333455
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
American Depository Shares, each Nasdaq National Market
representing 3 Ordinary Shares 5
pence par value per share
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
1
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference to Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 27, 2001, the aggregate market value of the ordinary shares,
(pound)0.05 par value per share of the Registrant held by non-affiliates was
approximately $4,579,000,000.
As of February 27, 2001, the number of outstanding ordinary shares of was
257,521,218.
2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Shire Pharmaceuticals Group plc's definitive Proxy Statement
for its Annual Meeting of Shareholders to be held in May or June 2001 are
incorporated into Part III.
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. The 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 affected.
The risks and uncertainties include, but are not limited to, risks associated
with the inherent uncertainty of pharmaceutical research, product development
and commercialization, the impact of competitive products, government regulation
and approval, and other risks and uncertainties detailed from time to time in
Shire's filings with the Securities and Exchange Commission including this
annual report on Form 10-K for the year ended December 31, 2000.
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ITEM 1: Business
(A) General Development of Business
We are an international specialty pharmaceutical company with a strategic
focus on four therapeutic areas: central nervous system disorders, metabolic
diseases, oncology and gastroenterology. We operate and manage our business in
three geographic areas - the United States ("U.S."), Europe and the rest of the
world. Within these geographical segments, revenues are derived from three
sources: sales of products by our own sales and marketing operations, licensing
and development fees, and royalties. We have our own direct marketing capability
in the U.S., Canada, the U.K., the Republic of Ireland, France, Germany, Italy
and Spain. We also cover other pharmaceutical markets indirectly through
distributors, and sales coverage continues to grow.
We have expanded our business both organically and through acquisitions,
including a merger with Roberts Pharmaceutical Corporation in December 1999.
We were incorporated under the laws of England and Wales on January 1,
1994. As part of a recapitalization, we acquired the entire share capital of
Shire Holdings Ltd on December 19, 1994, including the operations of Rybar
Laboratories Ltd, a U.K. based sales and marketing company acquired by our
predecessor in July 1992. In September 1995, we acquired Imperial Pharmaceutical
Services Ltd (subsequently renamed Shire Pharmaceutical Contracts Ltd). We
acquired Pharmavene, Inc. (subsequently renamed Shire Laboratories, Inc.) in
March 1997 and Richwood Pharmaceutical Company, Inc. (subsequently renamed Shire
Richwood, Inc.) in August 1997. In October 1999, we acquired the German, French
and Italian sales and marketing subsidiaries of Fuisz Technologies Ltd (the
subsidiaries were subsequently renamed Shire Deutschland, Shire France and Shire
Italia respectively). In June 2000, we established a sales and marketing
subsidiary in Spain, Shire Iberica. In May 2000, we also established a
Representative Office in Singapore to effectively manage our activities in the
Pacific Rim markets.
On December 11, 2000 we announced that we had entered into an agreement to
merge with BioChem Pharma Inc. The merger will be achieved through an exchange
of shares.
We are a public limited company organized under the laws of England and
Wales. With effect from March 5, 2001, our principal executive offices are
located at Hampshire International Business Park, Chineham, Basingstoke,
Hampshire, RG24 8EP, England and the telephone number is + 44 1256 894000. Prior
to that, our principal offices are at East Anton, Andover, Hampshire, SP10 5RG,
England and the telephone number is +44 1264 333455.
In this report, the term the "Company" or the "Group" refers to Shire
Pharmaceuticals Group plc and its subsidiaries unless the context indicates
otherwise.
(B) Financial Information about Industry Segments
Substantially all of our revenues, operating profits or losses and assets
are attributable to one line of business, the acquisition, development and sale
of pharmaceutical products in three geographical segments, the U.S., Europe and
the rest of the world.
(C) Description of Business
Strategy and Approach
Our strategy is to in-license, develop and market therapies in our key
areas of strategic focus. This approach is complemented by the advanced drug
delivery platforms we have developed which may be used to enhance the
bioavailability, reduce the side effects or improve the dosage regime of
existing marketed compounds. We seek to protect intellectual property on which
we rely through a range of patents and patent
4
applications (both our own and that of our licensors). The key elements of our
operating strategy are described below:
o Market proprietary products through our own sales force.
We believe that higher financial returns can be achieved by marketing
our products directly, as opposed to receiving royalties on licensees'
sales. We intend to continue to expand our sales and marketing capability,
as opportunities arise, particularly in the major U.S. and European
markets, Japan and through distributors outside of the other significant
pharmaceutical markets.
o Focus on central nervous system disorders, metabolic diseases,
oncology and gastroenterology.
We believe that due to the specialized nature of these diseases, our
focused sales force can effectively market to high volume prescribers.
o Manage operating and financial risk by maintaining a broad and
balanced portfolio and selectively involving multinational partners in
return for out-licensing product marketing rights.
We have a portfolio of eight key U.S. marketed products, each with
significant potential. The development pipeline has 17 projects and
includes Reminyl, in registration in the U.S. and various other markets,
SLI 381, a novel once-a-day formulation of Adderall submitted to the U.S.
Food and Drug Administration ("FDA") on October 3, 2000 and eight others
that are post Phase II. As the Company increases in size there are likely
to be fewer occasions where out-licensing of marketing rights will be
appropriate. However, we remain committed to ongoing collaborations such as
that with Janssen Pharmaceutica NV ("Janssen"), the co-development and
licensing partner for galantamine (Reminyl) in the treatment of Alzheimer's
disease.
Sales and Marketing
We intend to use our existing sales and marketing infrastructure to sell
and market most of our internally developed products. Our sales and marketing
operations in the U.S., U.K., the Republic of Ireland, continental Europe and
Canada presently consist of 456 sales representatives. We believe that our sales
and marketing infrastructure can be expanded rapidly to meet product
opportunities.
(a) Currently marketed products
The table below lists our key currently marketed products by therapeutic
areas, indicating the owner or licensor of the product, the marketer of the
product and the territory in which the product is being marketed.
Products Principal Indication(s) Owner/Licensor Marketed By/Relevant
Territory
Treatments for central nervous system disorders
Adderall ADHD Shire Shire/U.S.
DextroStat ADHD Shire Shire/U.S.
Carbatrol Epilepsy Shire Shire/U.S.
Reminyl Alzheimer's disease Shire Shire/U.K. and Republic of
Ireland (Co-promotion)
Treatments for metabolic diseases
Calcichew range Osteoporosis adjunct Nycomed Shire/U.K. and Republic of
Ireland
Treatments for oncology/haematology
Agrylin Elevated blood platelets Shire Shire/U.S. and Canada
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Fareston Advanced breast cancer Orion Shire/U.S.
ProAmatine/Amatine Orthostatic hypotension Nycomed Shire/U.S. and Canada
Treatments for gastrointestinal disorders
Pentasa Ulcerative colitis Ferring Shire/U.S.
Colazide Ulcerative colitis Shire Shire/U.K., Germany, France,
and other European countries
Colace/Peri-Colace Constipation Shire Shire/U.S. and Canada
Treatments for central nervous system disorders
Adderall and DextroStat. Attention Deficit Hyperactivity Disorder ("ADHD")
is a central nervous system disorder of unknown cause and is characterized by
varying degrees of inattention, impulsivity and hyperactivity. ADHD is primarily
a childhood disorder, although it is increasingly being recognized as continuing
through adolescence and into adulthood. According to IMS America, the U.S.
market for treatments for ADHD was approximately $665 million for the year ended
December 31, 2000. It is estimated that between three and five percent of
children in the U.S. suffer from the condition. U.S. Drug Enforcement Agency
("DEA") Schedule II products, specifically methylphenidate and amphetamines, are
currently the only approved first line treatments for ADHD available. Our
approved ADHD products, Adderall and DextroStat, are branded psychostimulants.
DextroStat is a branded generic formulation of dextroamphetamine. We believe
that Adderall, a unique combination of four amphetamine salts, is generally
administered in fewer daily doses than some of it's major competitors,
eliminating the need for a dose during school hours. According to IMS America,
retail sales of Adderall and DextroStat represented approximately 35% of the
aggregate ADHD market for the year ended December 31, 2000 with our percentage
of the market increasing from 30.5% in December 1999 to 35.9% in December 2000.
In the year ended December 31, 2000, sales of Adderall were $213.9 million,
representing approximately 41% of our total revenues. As a result, factors
adversely affecting the sale or production of Adderall would have a material
adverse effect on our financial condition and results of operation.
An incident in August 1998 at Arenol Corporation, our previous supplier of
the active ingredients for Adderall halted production for a total of 84 days.
The manufacture of these ingredients was transferred to the premises of B.I.
Chemicals, Inc. In July 1999, we purchased certain assets related to the
production of Adderall's key ingredients. In addition, production of the raw
materials for Adderall was transferred from Arenol to B.I. If a similar incident
were to occur at B.I., sales of Adderall would be adversely affected.
Other factors which could adversely affect sales of Adderall include:
o development of competitive pharmaceuticals (including a generic Adderall);
o technological advances;
o increased production costs;
o marketing or pricing actions by our competitors;
o changes in prescription writing practices;
o the occurrence of adverse reactions to Adderall;
o changes in reimbursement policies of third-party payers;
o product liability claims;
o government action/intervention; or
o public opinion towards ADHD treatments.
Carbatrol. Approximately 2.5 million people in the U.S. suffer from
epilepsy. Epilepsy is characterized by an episodic disturbance of consciousness
during which seizure activity occurs in the brain. Carbatrol is
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an extended release formulation of carbamazepine, an approved compound for the
treatment of epilepsy. Carbatrol is designed to improve compliance by delivering
steady blood levels of drug over 24 hours, when taken twice daily. It can be
administered as a capsule or sprinkled on food and can be taken with or without
meals. Carbamazepine is one of the most widely prescribed antiepileptic drugs
accounting for approximately 14% of total U.S. prescriptions written in 2000 for
the treatment of epilepsy. Prescription numbers for Carbatrol increased from
46,000 in December 1999 to 64,000 in December 2000.
The FDA approved the product on September 30, 1997 for marketing in the
U.S. Carbatrol was originally out-licensed to Athena, a subsidiary of Elan
Corporation plc. In December 1997, we reacquired the worldwide rights to
Carbatrol, together with inventory and certain plant and equipment for $25
million. We launched Carbatrol in the U.S. in June 1998. Effective March 31,
1999, we terminated our promotion agreement with Athena, and now promote the
product on our own.
In 1994, we obtained a patent in the U.S. covering the formulation of
Carbatrol with an expiration date of 2011. Patent applications covering this
technology are pending in other countries.
In the year ended December 31, 2000, sales of Carbatrol were $25.6 million
representing approximately 5% of our total revenues.
Treatments for metabolic diseases
Osteoporosis is characterized by a progressive loss of bone mass that
renders bone fragile and liable to fracture. More than three million people in
the U.K. are estimated to suffer from this condition. Osteoporosis affects both
sexes but is more rapid and profound in women, largely as a result of the
decline in estrogen production following menopause. Our principal products for
the treatment of osteoporosis are the Calcichew range of calcium and
calcium/vitamin D supplements which are sold mainly in the U.K. and the Republic
of Ireland, although certain of the ClimaRange and BetaRange products include
osteoporosis as an indication in their licenses. Our Calcichew range includes,
among others, Calcichew, Calcichew D3 and Calcichew D3 Forte, which are used as
adjuncts to other therapies and which we believe are more palatable than
alternative products. We held a leading position in the (pound)17 million
(approximately $25 million) U.K. prescription calcium market with a market share
of approximately 72% for the year ended December 31, 2000.
Treatments for oncology/haematology
Agrylin. In 1991, we obtained an exclusive worldwide license from
Bristol-Myers Squibb to develop, market and sell Agrylin (anagrelide) as an oral
treatment for thrombocythemia, a blood disorder characterized by chronically
elevated blood platelets. This disorder often results in an increased risk of
adverse blood clotting events, including heart attack and stroke. Agrylin is
intended to inhibit excessive platelet production and reduce the morbidity and
mortality rates of heart attack and stroke in these patients.
In March 1997, we received notification from the FDA that the New Drug
Application ("NDA") for Agrylin was approved. Active marketing and sales
activities commenced in the second quarter of 1997. There is no other FDA
approved treatment available for thrombocythemia. Other current therapies used
to reduce excessive platelet production may have disadvantages, such as possible
links to leukemogenesis and leukopenia.
In January 1999, we purchased the intellectual property rights to Agrylin
from Bristol-Myers Squibb for $35 million.
In January 2001, the European Commission granted orphan drug designation to
anagrelide for the treatment of essential thrombocythemia. This designation
covers the European Union ("EU"), plus Norway and Iceland and confers up to ten
years market exclusivity for the product following marketing authorization
approval. Orphan drug status already applies to anagrelide in the U.S. where
market exclusivity is available until 2004 and in Japan where it will run for
ten years following marketing approval.
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In December 1997, we filed an application with the FDA to expand the
indications of Agrylin to include polycythemia vera. In December 1998, we
received approval for the expanded indication for Agrylin for thrombocytosis
secondary to all myeloproliferative diseases, including polycythemia vera and
chronic myelogenous leukemia.
In the year ended December 31, 2000, sales of Agrylin were $57.7 million,
representing approximately 11% of our total revenues.
ProAmatine. In 1996, ProAmatine was given accelerated approval by the FDA
as a new drug for life-threatening illnesses and is currently the only FDA
approved treatment available in the U.S. for orthostatic hypotension. This is a
condition involving low blood pressure upon assuming an upright posture,
resulting in dizziness, weakness or unconsciousness. ProAmatine has been
designated as an orphan drug by the FDA, giving a seven year period of market
exclusivity in the U.S., which will expire in 2003. Sales of ProAmatine in 2000
were $23.7 million, representing approximately 5% of our total revenues.
Treatments for gastrointestinal disorders
Pentasa. In April 1998, exclusive U.S. marketing rights to Pentasa were
acquired from Hoechst Marion Roussel for $136 million. Pentasa is a patented
gastrointestinal drug for the treatment of ulcerative colitis. This drug
addresses a large market of over 2 million patients in the U.S. Sales of Pentasa
in 2000 were $54.2 million, representing approximately 10% of our total
revenues.
(b) Products under development
We seek to maintain a broad and balanced approach to our development of new
products by, among other things, leveraging third-party research and development
expertise, exploiting investment in research collaborations and licensing
compounds from third parties and developing them through the pre-clinical and
clinical phases with a view to marketing them by our own sales and marketing
organization or out-licensing if appropriate. Recognizing the inherent risks in
drug development, our policy is to manage this risk by maintaining a broad range
of products in different development phases. We aim to optimize the level of
fixed overhead by using contract research organizations to manage multi-center
and/or international clinical trials on a day-to-day basis. In the year ended
December 31, 2000, we spent $106.1 million on research and development,
representing approximately 21% of our total revenues.
The table below lists our key products under development by therapeutic
area, indicating their development status and their territorial rights. Where we
have secured a licensee for a product, this fact is also indicated.
Principal
Product(s) Indication(s) Status Territorial Rights
Treatments for central nervous system
disorders
Reminyl Alzheimer's In registration or Global
(galantamine)1 disease marketed
SLI 381 ADHD In registration (U.S.) Global
Dirame Moderate/severe Phase III Global
pain
SPD 417 Bi-polar disorder Phase III Global
SPD 503 ADHD Phase I Global
SPD 420 ADHD Phase I Global (option)
SPD 418 Epilepsy Phase I Global
SPD 502 Stroke Phase I Global excl. Nordic and Baltic
countries
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SPD 421 Epilepsy Phase I Global
SPD 451 Parkinson's disease Pre-clinical Global
Treatments for metabolic diseases
Foznol High blood phosphate Phase III Global
levels in patients
with kidney failure
Treatments for gastroenterological
diseases
Pentasa (500mg) Ulcerative colitis Phase II complete U.S.
Emitasol Nausea and vomiting Phase II complete U.S., Canada
Balsalazide Ulcerative colitis Phase II/III Certain countries within Europe
Treatments for oncological/ haematological
diseases
Agrylin Thrombocythemia In registration Global
SPD 424 Prostate cancer Phase III North America, Europe
SPD 427 Oncology Phase I Global
(1) The licensee is Janssen.
Treatments for central nervous system disorders
Reminyl (galantamine) for Alzheimer's disease
Alzheimer's disease is characterized by loss of memory, particularly for
recent events, confusion and disorientation, followed by gross intellectual
disturbances, personality changes and emotional disintegration. It is
progressive, with death usually occurring within five to nine years following
the onset of symptoms. It is estimated that eight million people in the U.S. and
Western Europe suffer from Alzheimer's disease.
We are developing Reminyl with the Janssen Research Foundation under a
co-development and licensing agreement. Reminyl will be registered and marketed
by us in the U.K. and the Republic of Ireland under a co-promotion with
Janssen-Cilag. Elsewhere, Janssen-Cilag will market the product.
The European Summary of Product Characteristics indicates that Reminyl has
a novel dual mechanism of action. Decreased levels of acetylcholine, caused by
the death of acetylcholine neurons, are known to be related to the symptoms of
Alzheimer's disease. In addition to preserving levels of acetylcholine in the
brain by blocking the action of the enzyme acetylcholinesterase (which
inactivates acetylcholine), laboratory research suggests that Reminyl may also
act on the brain's nicotinic receptors. The modulation of these receptors may
lead to the release of more acetylcholine. Janssen Research Foundation is
investigating the clinical significance of this characteristic.
Reminyl received its first regulatory approval within the EU from Sweden on
March 3, 2000. In July 2000, Reminyl successfully completed the EU Mutual
Recognition Procedure and was launched in the U.K. in September 2000. Further EU
launches are ongoing.
In the U.S., Janssen submitted an NDA on September 29, 1999. An approvable
letter was issued by the U.S. FDA in August 2000. An approvable letter is an
official communication from the FDA indicating that the agency is prepared to
accept the NDA upon finalization of the labeling and satisfaction of any
outstanding issues.
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It is anticipated that Reminyl will be launched using natural galantamine
extracted from daffodil bulbs. Although the necessary supply agreements are in
place, there can be no assurance that adequate supplies of daffodil bulbs of a
suitable quality will be available or that the supplier will be able to supply
sufficient galantamine of the required quality. We also expect, along with
Janssen, to seek regulatory approval for the synthetic manufacture of
galantamine, which may be delayed or withheld. We will be relying on Janssen and
Waldheim Pharmaceutica for the supply of synthetic galantamine of suitable
quality and there can be no assurance that adequate supplies will be available.
Dirame
Dirame is an orally administered centrally-acting analgesic for treating
moderate to moderately severe pain. In total, over 4000 patients have been
treated acutely with Dirame. We believe that Dirame could have a favorable
side-effect profile especially in terms of low addiction potential. This needs
to be proven in clinical studies. Exclusive worldwide rights to Dirame were
acquired from Bayer. The analgesic market is worth approximately $3.5 billion in
the U.S. The compound could have applications in several therapeutic categories
including pain associated with cancer, advanced arthritis and post-surgical
pain. The project is currently undergoing Phase III trials in osteoarthritis. A
further acute study is needed before filing for an acute pain indication in the
U.S. and EU.
ADHD products
In September 2000, it was announced that pivotal efficacy studies for SLI
381, a novel once-a-day formulation of Adderall for ADHD were complete.
Once-a-day Adderall utilizes Microtrol technology, an advanced drug delivery
technique, which is similar to that already applied to Carbatrol, a product we
successfully market in the U.S. for the treatment of epilepsy. An NDA for SLI
381 was submitted to the FDA on October 3, 2000.
SPD 503 is a non-scheduled compound for development primarily in the U.S.
targeting both adult and pediatric ADHD patients. Other key markets may also be
pursued. It is expected that this product will assist in treating certain
subsets of symptoms in ADHD patients. The project is currently in Phase I
clinical trials.
SPD 502
On February 5, 1998, we in-licensed from NeuroSearch A/S an AMPA antagonist
for central nervous system disorders including the acute treatment of stroke.
The project is currently at Phase I.
Treatments for metabolic diseases
Foznol
Foznol (lanthanum carbonate) is being developed for the prevention and
treatment of hyperphosphataemia in patients with chronic kidney failure.
Hyperphosphatemia, meaning high levels of phosphate in the blood, is a condition
arising from the inability of damaged kidneys to eliminate the excess dietary
phosphate which is widespread in food. Renal dialysis and a restricted diet are
generally unable to reduce these phosphate levels sufficiently. If left
untreated, hyperphosphatemia can result in renal osteodystrophy, a painful
condition with similarities to osteoporosis, in which there are abnormalities in
the formation and structure of bone. Foznol is designed to be administered with
food and act as a "phosphate binder," forming an insoluble phosphate salt in the
intestine, causing the phosphate salt to be eliminated in faeces.
It is estimated that there are 650,000 patients worldwide with end-stage
renal disease. We believe that the market for Foznol could be larger as there is
potential for Foznol to be used predialysis. In addition, we believe that
current therapies are not ideal: aluminum salts can cause neural toxicity and
are no longer
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widely used; calcium salts are inefficient binders requiring large doses and
often causing hypercalcemia, which among other things, can result in
calcification of blood vessels.
Foznol is currently undergoing Phase III clinical trials in the U.S. A
Marketing Authorization application is planned to be submitted in the EU during
the first quarter of 2001. We intend to submit a U.S. filing by the end of 2001.
Treatments for oncology
SPD 424
We are developing a compound to treat prostate cancer designated SPD 424.
Phase III clinical trials were initiated during the first half of 2000. The
rights to a patented hydrogel implant delivery technology for use in the
development of SPD 424 for the hormonal treatment of prostate cancer in North
America and Europe have been licensed to us by Hydro Med Sciences. SPD 424 is a
synthetic gonadotropic hormone releasing factor agonist that, due to its
long-term inhibition of pituitary release of gonodatropins, can block both
ovarian and testicular function. The hydrogel implant employs a proprietary
technology that delivers therapeutic agents at a controlled, constant release
rate for up to a year. It is a retrievable subcutaneous implant that can be
inserted in a physician's office using a local anesthetic.
SPD 427
A further project, SPD 427, has been added to our development portfolio. SPD
427, a novel formulation of an existing oncology product, will be developed
using our drug delivery expertise.
Treatments for gastroenterological disorders
Pentasa
Pentasa 250mg, which is currently licensed in the U.S., is used to treat
ulcerative colitis. As part of the acquisition of Pentasa from Hoechst Marion
Roussel, we received U.S. rights to a 500mg tablet, which has completed Phase II
development. The new 500mg tablet formulation or a higher dose formulation would
aid the compliance of patients who often need to take large doses of this
medication.
Emitasol
Emitasol is an intranasal formulation of metoclopramide, an existing
anti-nausea drug currently available in oral and injectable forms. Phase II
studies have been completed.
(c) Drug delivery technologies
We have a platform of five drug delivery technologies that can be applied
to drugs in order to enhance their effectiveness or their convenience to
patients in terms of dosage regimen. Generally, this involves reformulating the
drug into a new delivery system designed either to enhance the absorption of the
drug into the blood stream or, alternatively, to delay absorption of the drug
into the bloodstream, thereby requiring the patient to take fewer daily doses.
Our portfolio of drug delivery technologies includes a number of
technologies designed to improve the oral delivery of drugs, a technology
designed to provide an extended release drug delivery profile and a system to
provide enhanced solubility and extended release delivery. These technologies
can be made available to third parties in return for development fees,
milestones and royalties. We also intend to employ these technologies
selectively to products being developed internally where it is believed the
characteristics of the product can be improved or modified to secure a
competitive advantage.
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Manufacturing and Distribution
We currently manufacture finished product and package our Schedule II drugs
at our facility in Valley Stream, New York. Due to control and capacity issues
that had arisen during the previous ownership, we undertook a complete
renovation of the facility in 1995. This included hiring new management,
replacing virtually all of the manufacturing equipment and modernizing the
laboratory.
Adderall is currently manufactured solely by us in compliance with
specifications and quality standards that were developed internally and reviewed
by the FDA. Until August 1998, raw materials for Adderall were manufactured
solely by Arenol, Inc. Arenol's factory was destroyed following an explosion in
August 1998 and raw material manufacturing was transferred to B.I.'s plant in
Petersburg, Virginia. Recently, we have become aware of several active
pharmaceutical ingredient ("API") manufacturers that have overcome certain
technological barriers to producing the active ingredients in Adderall. While
adding potential competition in the years to come, this addition has reduced the
risk of catastrophic impact from an incident akin to the explosion at the Arenol
facility.
In July 1997, we concluded the purchase of a 100,000 square foot
pharmaceutical manufacturing facility previously operated by Monsanto's Searle
Division located in Oakville, Ontario, Canada. The facility is approved by the
Health Protection Branch of the Canadian Ministry of Health. We received FDA
accreditation for laboratory testing and repackaging of an NDA product during
2000.
In January 1999, we sold our 17,000 square foot Indianapolis, Indiana
plant, together with the products manufactured at that facility. All other
products are either manufactured and/or packaged at New York or by third party
contract manufacturers.
Our distribution center, which includes a large vault to house DEA
regulated Schedule II products, is located in Florence, Kentucky. From there, we
distribute our ADHD products to nearly all the wholesale distribution centers
and the three major warehousing pharmacy chains that stock Schedule II drugs in
the U.S., providing access to nearly all pharmacies in the U.S.
In October 1997, we completed the acquisition of a distribution facility
located in a suburb of Chicago. Distribution from this facility commenced in the
second quarter of 1998.
All products marketed by the U.K. based sales and marketing operation are
either manufactured and supplied by the originator of the product under supply
arrangements or are manufactured for us by third parties under contract.
Distribution in the U.K. and the Republic of Ireland and to export territories
is also contracted out to third parties. We have access to all principal drug
wholesale chains in the U.K. and Republic of Ireland and their respective
distribution centers.
In both the U.S. and the U.K., a small number of large wholesale
distributors control a significant share of each market. In recent years the
number of independent drug stores and small chains has decreased as a result of
consolidation. Consolidation or financial difficulties could cause customers to
reduce their inventory levels, or otherwise reduce purchases of our products.
In the U.S., our customers include McKesson Corp., Bergen Brunswig Corp.
and Cardinal Health Inc. In the U.K., our customers include The Boots Company
PLC, AAH Pharmaceuticals Ltd and Unichem Plc. For the fiscal year ended December
31, 2000, our three largest customers accounted for approximately 26%, 16% and
11% of total revenues, respectively. The loss of any one of these customer
accounts could have a material adverse effect on our financial condition and
results of operations.
Intellectual Property
An important part of our business strategy is to protect our products and
technologies through the use of patents, proprietary technologies and
trademarks, to the extent available. Our policy is to seek patent protection
whenever possible in the U.S., major European countries and Japan. Where
practicable,
12
we seek patent protection in other countries on a selective basis. In all cases,
we will either obtain patent protection ourselves or support applications by our
licensors. Our largest marketed product, Adderall, is not protected by patent;
however, the formulation and manufacturing controls associated with the product
require certain technical information, which we believe is available only to us
and to certain of our suppliers that have signed confidentiality agreements.
However, Cambrex has been reported to have developed four amphentamine salts as
raw material for the manufacture of a generic Adderall.
Our licensors have obtained patent protection or made applications for
patent protection for the use of galantamine for the treatment of Alzheimer's
disease. Generally this protection will be by either method of treatment claims
in the U.S. or by Swiss-type use patents directed to the use of the
pharmaceutical agent in connection with the manufacture of a product for use
with the new medical indication. The patents and patent applications relating to
the phosphate binder under development by Shire for use in the treatment of
hyperphosphatemia contain both Swiss-type use claims and formulation claims
directed to the phosphate binder under development.
Patents have been issued or applications made in relation to our process
technologies and, where appropriate, in respect of the formulation of products
made by those processes or incorporating those technologies.
We also rely on trade secrets, unpatented know-how and technological
innovations, trademarks and contractual arrangements with third parties to
maintain and enhance our competitive position where we are unable to obtain
patent protection or our marketed products are not covered by specific patents.
In the regular course of business, we are a party to litigation or other
proceedings relating to intellectual property rights. We cannot assure you that
our patents or patent applications or those of our third party manufacturers
will provide valid patent protection and will not be revoked as a result of
proceedings by third parties. If patents are granted to other parties that
contain claims having a scope that is interpreted by the relevant authorities to
cover any of our products or technologies, there can be no guarantee that we
will be able to obtain licenses to such patents or make other arrangements at
reasonable cost, if at all. Competitors or potential competitors may have filed
applications for, been granted patents for, or obtained additional patents and
proprietary rights that may relate to products and/or technologies competitive
with our products or those of our licensees.
We cannot assure you that our patents or those of our licensors will
ultimately be held valid or that efforts to defend any such patents or know-how
or other intellectual property rights would be successful. An adverse outcome in
any such litigation or proceeding could have a material adverse effect on the
sale or development of the product or technology in question and lead to the
abandonment or delay in development or sale of that product or technology and
lead to additional expenses.
Competition
The manufacture and sale of pharmaceuticals is highly competitive. Many of
our present and potential competitors have research and development capabilities
that may allow such competitors to develop new or improved products that compete
with our products. The pharmaceutical industry is characterized by rapid product
development and technological change. Our pharmaceutical products may be
rendered obsolete or uneconomical by the development of new pharmaceuticals to
treat the conditions addressed by our products or as the result of either
technological advances affecting the cost of production or marketing or pricing
action by competitors.
We believe that competition in our markets is based on, among other things,
product safety, efficacy, convenience of dosing, reliability, availability and
price. Companies with more resources and larger research and development
expenditures have a greater ability to fund research and clinical trials
necessary for regulatory applications, and may have an improved likelihood of
obtaining approval of drugs that would compete with our drugs. Prior regulatory
approvals for competing products would force our development products to compete
with an established drug. Other products now in use or under development by
others
13
may be more effective or have fewer side effects than our current or
future products. For example, we are aware of a number of products that may
compete with Reminyl, including Aricept by Pfizer and Exelon by Novartis.
Foznol's principal competitor is likely to be RenaGel, which was launched in
1998. The product was developed by GelTex Pharmaceutical, Inc. and is marketed
by Genzyme General.
In addition, we are aware of efforts by competitors to develop both
improved formulations of existing Schedule II drugs and new, non-Schedule II
drugs, for the treatment of ADHD. For example, Alza Corporation, Novartis (in
collaboration with Elan), Celltech Chiroscience plc (in collaboration with
Eurand) and Noven are believed to be developing extended release, once-a-day
formulations of methylphenidate while Celgene and Celltech Chiroscience plc are
both working to develop a single isomer version of methylphenidate.
GlaxoSmithKline , Eli Lilly, Bristol-Myers Squibb (in collaboration with Sano
Corporation) and Abbott are believed to be developing non Schedule II products
for ADHD. Cambrex has been reported to have developed four amphentamine salts as
raw material for the manufacture of a generic Adderall. Should any of these
products be approved by the FDA, they could have a material adverse effect on
the sales of Adderall, which represented approximately 41% of our total revenues
for the year ended December 31, 2000.
Principal Licensing and Collaborative Agreements
NeuroSearch A/S--Central nervous system disorders
In February 1998, we entered into a development and license agreement with
NeuroSearch A/S, whereby NeuroSearch granted us an exclusive license to certain
of its information and patent rights with respect to treatment for central
nervous system disorders in exchange for milestone and royalty payments. Our
marketing rights to the products extend throughout the world excluding Denmark,
Norway, Sweden, Finland, Iceland, Lithuania, Estonia and Latvia. The agreement
remains in effect so long as any royalty payments are due to NeuroSearch under
the agreement.
Nycomed--Calcium Products
We entered into two principal agreements with Nycomed in January 1987 and
May 1992 by which Nycomed granted us distribution rights for its calcium range
of products in the U.K. and the Republic of Ireland and certain export
territories. The agreements which remain in force until 2004 and 2002,
respectively, will continue after these dates for further periods of three years
unless terminated by 12 months written notice. Under the agreements, Nycomed
undertakes to supply exclusively us with the products for the U.K. and the
Republic of Ireland.
Oral HRT Products
The Meri/ClimaRange of HRT products is marketed by Novartis in eight
countries under license agreements through which we receive royalties on product
sales: the U.K., Austria, Brazil, Finland, Germany, Luxembourg, Spain and
Switzerland. Adcock Ingram market this range of HRT products in the Republic of
South Africa under a licensing and supply agreement with us.
The BetaRange of HRT products is marketed in the U.K. by Pharmacia and in
Latin America by Schering AG under license agreements through which we receive
royalties on product sales. This range of HRT products is also marketed under
licensing and supply agreements in the following European countries: Austria by
Kwizda, Sweden and Denmark by AstraZeneca and Germany by Jenapharm. BetaRange
products have been registered or are in the process of being registered but not
yet launched in other countries, for example in Eastern Europe where a range is
licensed to Bristol Myers Squibb and under which agreement milestone payments
are due to us on launch and we are to supply the product.
Various Galantamine Agreements
14
Pursuant to an agreement with Synaptech Inc., the owner of the patents on
galantamine for use in the treatment of Alzheimer's disease, we have undertaken
technical, pre-clinical and clinical work on the use of Reminyl in Alzheimer's
disease. We initially paid Synaptech an up front payment of (pound)1 million
(approximately $1.6 million) which was accounted for as a development cost, and
have agreed to pay royalties on sales of Reminyl. We have also entered into a
co-development agreement with Janssen under which we licensed to Janssen all of
our clinical data and know-how relating to the use of galantamine in Alzheimer's
disease worldwide, except for the U.K. and the Republic of Ireland. The
agreement provides for a one-time upfront payment, a milestone payment and the
reimbursement of development costs. The upfront and milestone payments were
recognized as licensing and development income when they became due. Under these
arrangements, Janssen undertook to finance substantially all the future research
and development costs of Reminyl as a treatment for Alzheimer's disease and to
conduct clinical trials, obtain regulatory approvals and manufacture and market
Reminyl. As a result we are dependent on Janssen for any revenues derived from
Reminyl. Moreover, there can be no assurance that our interests will continue to
coincide with those of Janssen.
Our rights to develop, manufacture and sell Reminyl for use in the
treatment of Alzheimer's disease under the patents of Synaptech extend
throughout the world but exclude North America, Korea, Taiwan, Thailand and
Singapore. We have, in turn, entered into a sub-license with Janssen under which
we granted Janssen exclusive rights to develop, manufacture and sell Reminyl for
use in Alzheimer's disease in all territories licensed to us except the U.K. and
the Republic of Ireland. We also have the right to reacquire the rights to sell
Reminyl in one of a specified group of major European countries. Janssen has
entered into a separate license agreement with Synaptech covering North America,
Korea, Taiwan, Thailand and Singapore. Synaptech authorized us to enter into the
above co-development agreement and the above sub-license agreement with Janssen,
under which, among other things, we will receive royalties on sales of Reminyl
by Janssen in the U.S.
The co-development agreement and sub-license granted to Janssen may be
terminated by Janssen on 90 days' notice. If Janssen exercises its right to
terminate the license and co-development agreement under this provision, the
licenses granted to Janssen terminate and Janssen is also obligated to transfer
to us data and other information and responsibility for the management of
continuing development and registrations of the product. The costs of ongoing
studies will be shared by us and Janssen in the relevant proportions in the
agreement for three months after the date of termination except for the costs
payable for clinical trials, which will be shared until they can be properly
terminated. Under the agreement we have the right to complete the registration
of the products and seek alternative partners.
We have had a continuing relationship with MacFarlan Smith Limited ("MS"),
a subsidiary of Meconic plc, since October 1991 under which MS produces
galantamine for use in our clinical trials. In June 1997, we concluded
agreements with MS and Janssen for the procurement of daffodil bulbs by MS and
the extraction from those bulbs of galantamine for use in the production of
galantamine for commercial launch of the product. Under these arrangements, it
is anticipated that MS will arrange for the production, planting and harvesting
of daffodil bulbs during the next two years in sufficient quantities to provide
the worldwide launch stock for the product and will also construct a plant to
undertake the extraction of galantamine with an agreed maximum plant cost of
(pound)7 million (approximately $11.2 million). Reciprocal arrangements have
been concluded with Janssen, which will bear the entire cost other than a
proportion relative to the supply of bulbs and product for sale by us in the
U.K. and Ireland. These arrangements with MS may be terminated by us and
Janssen.
Johnson Matthey--Foznol
Johnson Matthey plc has applied in the U.S., Europe and elsewhere for
patents for the use of lanthanum carbonate for the treatment or prevention of
hyperphosphatemia. In February 1996, we entered
15
into an agreement with Johnson Matthey under which Johnson Matthey granted to us
an exclusive license agreement to develop, manufacture, use and sell Foznol
worldwide. Under the license agreement, in return for an exclusive license
expiring on the expiration of the relevant patent, we will pay an upfront
payment and a royalty on sales of Foznol. We have consented to the assignment by
Johnson Matthey of its patents to AnorMed Inc., a Canadian company, which is
partially owned by Johnson Matthey. As part of these arrangements we amended the
agreement and received an exclusive worldwide license to use Johnson Matthey's
manufacturing know-how in return for up front payments and royalties.
Government Regulation
The clinical development, manufacturing and marketing of our products are
subject to regulation by various authorities in the U.S. and EU, including the
FDA, the DEA and the Occupational Safety and Health Administration and in the
U.K., principally the Medicines Control Agency ("MCA"). The Federal Food, Drug,
and Cosmetic Act, the Public Health Service Act in the U.S. and numerous
directives and guidelines in the EU govern the testing, manufacture, safety,
efficacy, labeling, storage, record keeping, approval, advertising and promotion
of our products. Product development and approval within these regulatory
frameworks takes a number of years and involves the expenditure of substantial
resources.
Regulatory approval will be required in the major markets in which we or
our licensees seek to test or market products. At a minimum, such approval
requires the evaluation of data relating to the quality, safety and efficacy of
a product for its proposed use. The specific types of data required and the
regulations relating to this data will differ depending on the territory, the
drug involved and the stage of development.
In general, for a new chemical entity, the product needs to undergo
rigorous preclinical testing before it can be used in humans, both in the
laboratory and, until suitable alternative tests are found, in animals. Clinical
trials for new products are typically conducted in three sequential phases that
may overlap. In Phase I, the initial introduction of the pharmaceutical into
healthy human volunteers, the emphasis is on testing for safety (adverse
effects), dosage tolerance, metabolism, distribution, excretion and clinical
pharmacology. Phase II involves studies in a limited patient population to
determine the initial efficacy of the pharmaceutical for specific targeted
indications, to determine dosage tolerance and optimal dosage and to identify
possible adverse side effects and safety risks. Once a compound is found to be
effective and to have an acceptable safety profile in Phase II evaluations,
Phase III trials are undertaken to more fully evaluate clinical outcomes.
In the U.S., data, as described above, need to be submitted to the FDA as
part of an Investigational New Drug ("IND") application which, unless the FDA
objects, will become effective 30 days following receipt by the FDA. Phase I
studies in human volunteers may commence only after this lack of objection.
Prior regulatory approval for human volunteer studies is not required in the
U.K., although the same level of testing will need to have been completed before
we decide it is safe to proceed. Following successful completion of Phase I
studies, data is then submitted in summarized format to the MCA as a clinical
trial exemption application in support of a specific Phase II clinical study or
program, and provided no objection has been received within a maximum of 63 days
after receipt, the Phase II studies may commence. For any additional studies,
Phase II and/or Phase III, further submissions to regulatory authorities are
necessary, detailing results of previous trials, updating ongoing preclinical
studies and describing full details of the proposed studies. Authorities may
require additional data before allowing the studies to commence and could demand
the studies be discontinued at any time if there are significant safety issues.
In addition to the regulatory review, the study must often be approved by an
independent body. The exact composition and responsibilities of this body will
differ from territory to territory. In the U.S., for example, each study will be
conducted under the auspices of an independent Institutional Review Board at the
institution at which the study is conducted. This board considers among other
things, the design of the study, ethical factors, the safety of the human
subjects and the possible liability risk for the institution. The U.K.
equivalent of this body, the Ethics Committee, has a very similar approach.
Other authorities around Europe and the rest of the world have slightly
differing requirements involving both the execution of clinical trials and the
import/ export of pharmaceutical products. It is our responsibility to ensure we
conduct our business in accordance with the regulations of each relevant
territory.
16
Information generated in this process is susceptible to varying
interpretations that could delay, limit or prevent regulatory approval at any
stage of the approval process. The failure to demonstrate adequately the
quality, safety and efficacy of a therapeutic drug under development would delay
or prevent regulatory approval of the product. There can be no assurance that if
clinical trials are completed, either we or our collaborative partners will
submit applications for required authorizations to manufacture and/or market
potential products (including a marketing authorization, NDA or abbreviated NDA)
or that any such application will be reviewed and approved by the appropriate
regulatory authorities in a timely manner, if at all.
In order to gain marketing approval we must submit a dossier to the
relevant authority for review. The format is usually specific and laid out by
each authority, although in general it will include information on the chemistry
and pharmaceutical aspects of the product as well as the pre-clinical and
clinical data. The FDA undertakes the review for the U.S.; in Europe the review
may be undertaken by the European Medicines Evaluation Agency or an individual
country's agency, followed by "mutual recognition" of this review by a number of
other countries' agencies, depending on the process applicable to the drug in
question. Approval can take several months to several years, or be denied. The
approval process can be affected by a number of factors; additional animal
studies or clinical trials may be requested during the review and may delay
marketing approval and involve unbudgeted costs. The agency may conduct an
inspection of the facility, review manufacturing procedures, operating systems
and personnel qualifications. In addition to obtaining approval for each
product, in many cases each drug manufacturing facility must be approved.
Further inspections may occur over the life of the product. As a condition of
approval, the regulatory agency may require post-marketing surveillance to
monitor for adverse effects. After approval for the initial indication, further
clinical studies are necessary to gain approval for any additional indications.
The terms of any approval, including labeling content, may be more restrictive
than expected and could affect the marketability of a product.
In the U.S., the Drug Price Competition and Patent Restoration Term Act of
1984, known as the Waxman-Hatch Act, established abbreviated application
procedures for obtaining FDA approval for many brand name drugs that are
off-patent and whose marketing exclusivity has expired. Approval to manufacture
these drugs is obtained by filing an abbreviated new drug application. As a
substitute for conducting full-scale preclinical and clinical studies of the
brand name drug, the FDA requires data establishing that the drug formulation,
which is the subject of an abbreviated application, is either bio-equivalent or
has the same therapeutic effect as the previously approved drug, among other
requirements. The European guidelines also allow for the submission of abridged
applications using similar criteria to the U.S. system.
For both currently marketed and future products, failure to comply with
applicable regulatory requirements after obtaining regulatory approval can,
among other things, result in the suspension of regulatory approval, as well as
possible civil and criminal sanctions. Renewals in Europe may require additional
data, which may result in a license being withdrawn. In the U.S., the FDA has
the authority to revoke or suspend approvals of previously approved products, to
prevent companies and individuals from participating in the drug-approval
process, to request recalls, to seize violative products and to obtain
injunctions to close manufacturing plants not operating in conformity with
regulatory requirements and to stop shipments of violative products. The FDA
also may impose pre-clearance requirements on products currently being marketed
without FDA approval. In addition, changes in regulation could have a material
adverse effect on our financial condition and results of operation.
The DEA also controls the national production and distribution of Schedule
II drugs in the U.S. by allocating production quotas based, in part, upon the
DEA's view of national demand. As Schedule II drugs, the production and sale of
our ADHD products are strictly controlled.
Third Party Reimbursement
Our ability to market products depends in part on the extent to which
healthcare providers pay at appropriate reimbursement levels for the cost of the
products and related treatment. Third-party payers are
17
increasingly challenging the pricing of pharmaceutical products and/or seeking
pharmacoeconomic data to justify reimbursement practices. In the U.S., several
factors outside of our control could significantly influence the purchase of
pharmaceutical products including the trend toward managed health care, the
growth of organizations such as health maintenance organizations and managed
care organizations and legislative proposals to reform health care and
government insurance programs. These factors could result in lower prices or a
reduction in demand for our products. However, the prices of our products are
fixed and determinable at the outset of each transaction we undertake with our
customers, and therefore these factors would not impact the recording of our
revenues in accordance with generally accepted accounting principles.
Similar developments may take place in the EU markets, where the emphasis
will likely be on price controls and non-reimbursement for new and highly priced
medicines for which the economic as well as the therapeutic rationales are not
established. Significant uncertainty exists about the reimbursement status of
newly approved pharmaceutical products. There can be no assurance that
reimbursement will be available for any of our products. Limits on reimbursement
available from third-party payers may reduce the demand for our products.
Employees
On December 31, 2000, we employed 1,023 individuals, 544 of whom were in
sales and marketing, 148 of whom were in research and development, 202 of whom
were in manufacturing and distribution, and 129 of whom were in general and
administrative. In addition to our full and part time staff, we engage
professional personnel on a consultancy basis and, from time to time,
consultants and others on a per day or hourly basis. We believe that relations
with our employees are satisfactory. None of our employees is represented by a
labor union.
Our success is dependent on our ability to attract and retain highly
qualified management and scientific personnel. We face intense competition for
personnel from other companies, academic institutions, government entities and
other organizations. There can be no assurance that we will be successful in
attracting and retaining such personnel. In general, we have agreements with our
key scientific and management personnel for periods of one year or less.
Financial Information about Foreign and Domestic Operations
Financial information about Foreign and Domestic Operations is presented in
Note 20 to the Company's consolidated financial statements. See "Notes to the
Consolidated Financial Statements - Note 20."
Risk Factors
As a specialty pharmaceutical company, the introduction of new products by
competitors may impact on sales levels.
The manufacture and sale of specialty pharmaceuticals is highly
competitive. If any products are approved, that compete with one of our
principal drugs, sales of our drugs will likely fall. Many of our competitors
are large, well-known pharmaceutical, chemical and health care companies with
considerably greater resources. Companies with more resources and larger
research and development expenditures have a greater ability to fund research
and clinical trials necessary for regulatory applications. They may also have an
improved likelihood of obtaining approval of drugs competing with those
currently marketed or under development by us. The pharmaceutical industry is
characterized by rapid product development and technological change. Our
products could be rendered obsolete or uneconomical through the development of
new products or technological advances in the cost of production or marketing by
our competitors.
As a search and development company, the failure to secure new products for
development may reduce the strength of the future pipeline.
18
Our future results will depend, to a significant extent, upon our ability
to in-license or acquire new products for development. Many of our present and
potential competitors have research and development capabilities that may allow
them to develop new or improved products that may compete with our products. The
failure to in-license or acquire new products or to develop, on a commercially
viable basis, new products would have a material adverse effect on our financial
condition and results of operations.
As a sales and marketing company, the actions of governments, regulators and
customers can affect the ability to sell or market products profitably.
Our ability to market our products will depend in part on reimbursement
levels for the cost of the products and related treatment established by health
care providers, including government authorities, private health insurers and
other organizations, such as health maintenance organizations and managed care
organizations. Third party payers are increasingly challenging the pricing of
pharmaceutical products and reviewing their reimbursement practices.
In addition, the purchase of pharmaceutical products could be significantly
influenced by the following, which would result in lower prices and a reduced
demand for our products:
o the trend toward managed health care in the U.S.;
o legislative proposals to reform health care and government insurance
programs; or
o price controls and non-reimbursement of new and highly priced
medicines for which the economic and therapeutic rationales are not
established.
In both the U.S. and the U.K., a small number of large wholesale
distributors control a significant share of each market. In addition, the number
of independent drug stores and small chains has decreased as retail pharmacy
consolidation has occurred. Consolidation or financial difficulties could cause
customers to reduce their inventory levels, or otherwise reduce purchases of our
products.
The outsourcing of services can create a significant dependency on third
parties, the failure of whom can affect the ability to develop and market
products.
We have entered into licensing and co-development agreements with a number
of parties. There is a risk that, upon expiration or termination of a third
party agreement, we may not be able to renew or extend the agreement with the
third party as interests may no longer coincide. In addition, we may not be able
to obtain an alternative supplier for the necessary goods or services on
commercially viable terms. Our development agreements generally are terminable
upon the occurrence of events described in the agreements, such as the
non-payment of royalties or the insolvency of one of the parties to the
agreement, and, in some cases, upon notice. In such circumstances we may be
unable to continue to develop or market our products as planned and could be
required to abandon or divest a product line.
The development and approval of our products depends on the ability to
procure active ingredients and special packaging materials from sources approved
by regulatory authorities. Because the marketing approval process requires
manufacturers to specify their own proposed suppliers of active ingredients and
special packaging materials in their applications, regulatory approval of a new
supplier would be required if active ingredients or such packaging materials
were no longer available from the specified supplier. The need to qualify a new
supplier could delay our development and marketing efforts.
The principal components of our products are active and inactive
pharmaceutical ingredients and special packaging materials. Many of these
components are available only from one supplier. We may not be able to establish
or maintain good relationships with suppliers. Additionally, there is no
assurance that suppliers will continue to exist or be able to supply ingredients
that meet regulatory requirements. In the case of new and existing products, we
are also subject to the risk that third party manufacturers will not be able to
meet our need to supply market requirements for production in sufficient
quantities.
19
We intend to explore acquisitions and, if we do not successfully integrate
future acquisitions, we may have products or operations that do not yield any
benefit.
We intend to pursue business and product acquisitions that could complement
or expand our operations. However, we may not be able to identify appropriate
product acquisition candidates in the future. If a product acquisition candidate
is identified, we do not know if we will be able to negotiate successfully the
terms of the acquisition, finance the acquisition or integrate an acquired
business or product into our existing operations. The negotiation and completion
of potential acquisitions could cause diversion of management's time and
resources. If we consummate one or more significant acquisitions through the
issuance of ordinary shares or ADSs, holders of ordinary shares and ADSs could
suffer significant dilution of their ownership interests.
If we are unable to meet the requirements of regulators in relation to a
particular product, we may be unable to develop and market the product.
Drug companies that manufacture or market drugs are required to obtain
regulatory approval before marketing most drug products. Regulatory approval is
generally based on the results of:
o preclinical testing;
o clinical data;
o manufacturing, chemistry and control data; and
o bioavailability.
The clinical development, manufacture, marketing and sale of pharmaceutical
products are subject to extensive regulation, including separate regulation by
each country in the EU, the EU itself, and federal, state and local regulation
in the U.S. Unanticipated legislative and other regulatory actions and
developments concerning various aspects of our operations and products may
restrict our ability to sell one or more of our products or to sell those
products at a profit. The primary regulatory authorities which regulate our
ability to manufacture and sell pharmaceutical products include the MCA in the
U.K., the FDA and the DEA in the U.S. and the Health Protection Branch of the
Ministry of Health in Canada.
The generation of data is regulated and any generated data are susceptible
to varying interpretations that could delay, limit or prevent regulatory
approval. Required regulatory approvals may not be obtained in a timely manner,
if at all. In addition, other regulatory requirements for any such proposed
products may be met. Even if we obtain regulatory approvals, the terms of any
product approval, including labeling, may be more restrictive than desired and
could affect the marketability of our products. Regulatory authorities have the
power to:
o revoke or suspend approvals of previously approved products;
o require the recall of products that fail to meet regulatory
requirements; and
o close manufacturing plants that do not operate in conformity with
current Good Manufacturing Practices and/or other regulatory
requirements or approvals.
Such delays or actions could affect our ability to manufacture and sell our
products.
If we are unable to complete successfully clinical trials, our products will not
receive authorization for manufacture and sale.
Due to the complexity of the formulation and development of
pharmaceuticals, we cannot be certain that we will successfully complete the
development of new products, or, if successful, that such products will be
commercially viable.
20
Before obtaining regulatory approvals for the commercial sale of each
product under development, we must demonstrate through clinical trials that the
product is of appropriate quality and is safe and effective for the claimed use.
Clinical trials of any product under development may not demonstrate the
quality, safety and efficacy required to result in an approvable or a marketable
product. Failure to demonstrate adequately the quality, safety and efficacy of a
therapeutic drug under development would delay or prevent regulatory approval of
the product. In addition, regulatory authorities in Europe or the U.S.
(including the U.K. MCA and the U.S. FDA) may require additional clinical
trials, which could result in (a) increased costs and significant development
delays, or (b) termination of a project as it would no longer be economically
viable.
The completion rate of clinical trials is dependent upon, among other
factors, obtaining adequate clinical supplies and recruiting patients. Delays in
patient enrollment in clinical trials may also result in increased costs and
program delays. Additional delays can occur in instances in which we share
control over the planning and execution of product development with
collaborative partners. We intend to continue to out-license a number of
products and the clinical development of such out-licensed products would then
be the responsibility of the licensee. We cannot be certain that if clinical
trials are completed, either we or our collaborative partners will file for or
receive required authorizations to manufacture and/or market potential products
in a timely manner.
If a marketed product fails to work effectively or causes adverse side effects,
this could result in damage to our reputation, the withdrawal of the product and
legal action for compensation.
Our ability to sell any pharmaceutical products after the receipt of
regulatory approval will depend in part on the acceptance of those products by
physicians and patients. Unanticipated side effects or unfavorable publicity
concerning any of our products generally or those of our competitors could have
an adverse effect on our ability to maintain and/or obtain regulatory approvals
or successfully market our products. The future results of operations will also
depend on continued market acceptance of our current products and the lack of
substitutes that are cheaper or more effective.
The testing, manufacturing, marketing and selling of pharmaceutical
products entails a risk of litigation and product liability. If, in the absence
of insurance, we do not have sufficient financial resources to satisfy a
liability resulting from such a claim or to fund the legal defense of such a
claim, we could become insolvent. Product liability insurance coverage is
expensive, difficult to obtain and may not be available in the future on
acceptable terms. Although we carry primary product liability insurance in the
amount of (pound)100 million (approximately $150 million) per claim and
(pound)100 million in the aggregate for the twelve month period on a claims-made
basis, this coverage may not be adequate. This insurance does not include
coverage for phentermine. In addition, we cannot be certain that insurance
coverage for present or future products will continue to be available.
If we cannot obtain the financing necessary to fund our expansion, we will not
be able to respond to changes in demand from our customers.
We anticipate that our existing capital resources, together with cash
expected from operations and available from bank borrowings, should be
sufficient to finance current and anticipated operations and working capital
requirements for the next twelve months. However, the acquisition and licensing
of products, the expansion of our sales force, and any expansion or relocation
of our facilities would require substantial capital resources. If adequate funds
are not available, we may be unable to pursue acquisitions, or be forced to
curtail in-licensing or research and development programs. To satisfy our
capital requirements, we may need to raise additional funds through public and
private financings, including equity financings. We may also seek additional
funding through corporate collaborations and other financing arrangements. We do
not know whether adequate funds will be available when needed or on terms
acceptable to us. Alternatively, we may need to obtain funds through
arrangements with future collaborative partners or others that may require us to
relinquish rights to some or all of our technologies or product candidates. If
we are successful in obtaining additional financing, the terms of the financing
may have the effect of diluting the value of ordinary shares and ADSs.
21
A change in the value of the U.S. dollar could adversely affect our results.
Changes in exchange rates, particularly those between the U.S. dollar and
pound sterling will affect our results of operations. For the year ended
December 31, 2000, approximately 20% of our revenue was earned in currencies
other than U.S. dollars compared to approximately 38% of our expenses.
Any decrease in the sales of Adderall could significantly reduce our revenues.
In 2000, sales of Adderall were approximately $213.9 million, representing
approximately 41% of our revenues. Any factors that decrease sales or reduce
production of Adderall would significantly reduce our revenues. These include:
o development of competitive pharmaceuticals (including a generic
Adderall);
o technological advances;
o increased production costs;
o marketing or pricing actions by our competitors;
o changes in prescription writing practices;
o the occurrence of adverse reactions to Adderall; o changes in
reimbursement policies of third party payers;
o product liability claims;
o government action/intervention; or
o public opinion towards ADHD treatments.
Contracts, intellectual property patents and other agreements are used in all
areas of operation of the business that may contain conditions that do not
protect our position or that we cannot comply with.
Contracts form the basis of agreement in many key activities such as
mergers and acquisitions, suppliers and outsourcing, or product licensing and
marketing. These contracts may contain conditions that impose duties on the
parties involved or may fail to contain adequate conditions to protect our
position. We may be unable to meet these conditions or may be unable to enforce
other parties to comply. We may therefore suffer financial loss or penalty.
An important part of our business strategy is to protect our products and
technologies through the use of patents, proprietary technology and trademarks,
to the extent available. In addition, our success depends upon the ability of
our collaborators and licensors to protect their own intellectual property
rights.
Patents and patent applications covering a number of the technologies and
processes owned or licensed to us have been granted or are pending in various
countries, including the U.S. We intend to enforce vigorously our patent rights
and believe that our collaborators intend to vigorously enforce patent rights
they have licensed to us. However, patent rights may not prevent other entities
from developing, using or commercializing products that are similar or
functionally equivalent to our products or technologies or processes for
formulating or manufacturing similar or functionally equivalent products. Patent
rights may be successfully challenged in the future.
Additionally, our products or the technologies or processes used to
formulate or manufacture those products may now or in the future infringe the
patent rights of third parties. It is also possible that third parties will
obtain patent or other proprietary rights that might be necessary or useful for
the development, manufacture or sale of our products. If third parties are the
first to invent a particular product or technology, it is possible that those
parties will obtain patent rights that will be sufficiently broad to prevent us
or our strategic collaborators from developing, manufacturing or selling our
products. We may need to obtain licenses for intellectual property rights from
others to develop, manufacture and market commercially viable
22
products. We may not be able to obtain these licenses on commercially reasonable
terms, if at all. In addition, any licensed patents or proprietary rights may
not be valid and enforceable.
We also rely on trade secrets and other un-patented proprietary
information, which we generally seek to protect by confidentiality and
nondisclosure agreements with our employees, consultants, advisors and
collaborators. These agreements may not effectively prevent disclosure of
confidential information and may not provide us with an adequate remedy in the
event of unauthorized disclosure of such information. For example, although we
rely on proprietary information and trade secrets relating to Adderall, Adderall
is not patent protected and competitors may be able to produce competing
products. If our employees, scientific consultants or collaborators develop
inventions or processes that may be applicable to our products under
development, such inventions and processes will not necessarily become our
property, but may remain the property of those persons or their employers.
Protracted and costly litigation could be necessary to enforce and determine the
scope of our proprietary rights. Our failure to obtain or maintain patent and
trade secret protection, for any reason, could allow other companies to make
competing products and reduce the sales of our products.
We have filed applications to register various trademarks for use in
connection with pharmaceuticals and related laboratory services in the U.S. and
intend to trademark new product names as they are developed. In addition, with
respect to certain products, we rely on the trademarks of third parties. These
trademarks may not afford adequate protection, or we and the third parties may
not have the financial resources to enforce any rights under any of these
trademarks. Our inability or the inability of these third parties to protect
their trademarks because of successful third party claims to those trademarks
could allow others to use our trademarks and dilute their value.
Throughout our business and particularly through the sale of our products, we
may become involved in litigation as a defendant. This may result in distraction
of senior management, significant defense costs and payment of compensation.
Item 3 provides a summary of significant legal proceedings in which we are
currently involved. Items of relevance in this section include:
Phentermine
One particular legal action that has involved significant management time
relates to the manufacture and sale of Phentermine. We are currently a defendant
in both federal and state courts involved in cases that seek damages for, among
other things, personal injury arising from phentermine products supplied for the
treatment of obesity by us and several other pharmaceutical companies. We have
been sued as a manufacturer and distributor of phentermine, an anorectic used in
the short-term treatment of obesity and one of the products addressed by the
lawsuits. The suits relate to phentermine either alone or together with
fenfluramine or dexfenfluramine. In 171 of the suits in which we have been named
as a defendant (of which 105 have been dismissed), the plaintiffs specifically
alleged in the complaint or subsequent discovery that they used phentermine
products manufactured or distributed by us. The lawsuits generally allege the
following claims:
o the defendants marketed phentermine and the other products for the
treatment of obesity and misled users about the products and the
dangers associated with them;
o the defendants failed to adequately test phentermine individually and
when taken in combination with the other drugs; and
o the defendants knew or should have known about the negative effects of
the drugs and should have informed the public about such risks and/or
failed to provide appropriate warning labels.
We became involved with phentermine through our acquisition of certain
assets of Rexar Pharmacal Corp. in January 1994. In addition to liability as a
result of our own manufacturing and distributing of phentermine products,
plaintiffs may seek to impose liability on us as a successor to Rexar. Class
certification has been sought for certain of the claims made against us and the
other defendants. In addition,
23
pending federal lawsuits have been consolidated as a multidistrict litigation in
the Eastern District of Pennsylvania.
Over the last year, the extent of management time has reduced as we have
been dismissed by the courts from a significant number of cases. Similarly, the
number of cases where we are still incurring defense costs or where there is
potential for compensation has been reduced. As of December 31, 2000, we had
been named in approximately 3,729 cases. We have been dismissed from 2,178 of
these cases with approximately 1,120 cases pending dismissal. If we are found
liable in some or all of the outstanding lawsuits for damages in excess of our
assets, we would be required to consider reorganizing and seeking protection in
bankruptcy or initiating insolvency proceedings.
Legal expenses have been paid by our supplier, Eon Labs Manufacturing Inc.
("Eon"), or Eon's insurance carriers, but such insurance is now exhausted. Eon
has agreed to defend and indemnify us in this litigation pursuant to an
agreement dated November 30, 2000 between Eon and ourselves.
On August 31, 2000, we entered into an agreement (the "Termination
Agreement") with the former shareholders of Shire Richwood Inc. ("SRI"),
pursuant to which the ordinary shares placed in escrow at the time of our
purchase of SRI were released and the escrow agreement and the escrow fund were
terminated. The escrow agreement with the SRI shareholders was initially
established by Shire in anticipation of possible phentermine related claims
against the Company. Under the terms of the Termination Agreement, monies in the
approximate amount of $7 million were received by Shire and the escrow fund was
terminated. The remaining shares were distributed to the former SRI
shareholders.
We have our own insurance up to a maximum of $3 million for lawsuits filed
in the period to April 28, 1998, an additional $85 million of coverage put in
place during 2000, and an unlimited indemnity given by Eon for phentermine it
manufactured for us. We have already spent a substantial amount of resources in
managing these lawsuits and will continue to do so.
Conflicting patent rights
There has been substantial litigation in the pharmaceutical industry with
respect to the manufacture, use and sale of new products that are the subject of
conflicting patent rights. These lawsuits relate to the validity and
infringement of patents. The expense of defending lawsuits brought against us
could cause us not to defend these suits and abandon the products. In the past,
innovators of products which we are in the process of developing have filed
patent infringement lawsuits challenging notices of non-infringement submitted
as part of regulatory filings. These lawsuits may be brought by innovators
against us or our collaborative partners while we or our collaborative partners
pursue regulatory approvals for our products. The ultimate outcome of this type
of litigation, if brought, may not be favorable. Our own patents may be subject
to infringement by others. While we may pursue litigation in order to protect
these rights, we may not be successful in these lawsuits. We are also required
to certify to regulatory authorities, such as the FDA, when seeking approval of
some of our products that the product does not infringe upon third party rights.
A patent holder may challenge a notice of non-infringement or invalidity by
filing suit for patent infringement within 45 days of receiving notice. This
challenge, if made, would prevent regulatory approval in the U.S. until the suit
were resolved or until at least 30 months had elapsed.
Any loss of key personnel could cause us subsequent financial loss.
Our success is dependent on our ability to attract and retain highly
qualified management and scientific personnel. We face intense competition for
personnel from other companies, academic institutions, government entities and
other organizations. We may not be able to successfully attract and retain such
personnel. In general, we have agreements with some of our key scientific and
management personnel for periods of one year or less. The loss of such
personnel, or the inability to attract and retain the additional, highly skilled
employees required for our activities, could prevent us from developing new
products. We have key man insurance for Rolf Stahel, our Chief Executive, in the
amount of $1 million.
24
ITEM 2: Properties
The Company's worldwide headquarters are currently located at East Anton,
Andover, Hampshire, England, which consist of an aggregate of 17,500 square feet
of leased office space. The Company has the option to invoke a break clause on
this lease in October 2001.
In October 2000, we purchased the freehold of a new building located at
Hampshire International Business Park, Chineham, Basingstoke, Hampshire. This
consists of approximately 35,000 square feet and will be ready for occupation in
March 2001. It will then become the new worldwide headquarters.
In addition, we occupied the following principal premises as of December
31, 2000:
Location Use Approximate Owned or Leased
Square Footage
Rockville, Maryland Office accommodation and 44,500 Leased
laboratories
Rockville, Maryland Office accommodation 16,500 Leased
Florence, Kentucky Office accommodation and 32,000 Leased
warehousing
Valley Stream, New York Manufacturing facility and 9,700 Leased
laboratories
Oakville, Ontario, Canada Manufacturing facility and 100,000 Owned
office accommodation
Buffalo Grove, Illinois Distribution facility 70,000 Owned
Paris, France Office accommodation 1,500 Leased
Cologne, Germany Office accommodation 3,000 Leased
Madrid, Spain Office accommodation 2000 Leased
Florence, Italy Office accommodation 2000 Leased
We also have Representative Offices in the Republic of Ireland, Singapore
and New Jersey, U.S.
25
ITEM 3: Legal Proceedings
As of December 31, 2000 we were named as a defendant in approximately 3,729
lawsuits, in both U.S. federal and state courts, which seek damages for, among
other things, personal injury arising from certain products supplied for the
treatment of obesity by us and several other pharmaceutical companies. See "Risk
Factors - Throughout our business and particularly through the sale of our
products, we may become involved in litigation as a defendant. This may result
in distraction of senior management, significant defense costs and payment of
compensation."
In addition, we are from time to time party to litigation or other legal
proceedings. Other than as discussed above, we are not a party to any litigation
or other legal proceedings that we believe could reasonably be expected to have
a material adverse effect on our financial condition or results of operations.
ITEM 4: Submission of matters to a vote of security holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2000.
26
ITEM 4A: Executive Officers of the Registrant
The directors and executive officers of the Company as of December 31, 2000
were as follows:
Name Age Position
Dr James Cavanaugh 63 Non-executive Chairman
Rolf Stahel 56 Chief Executive
Angus Russell 44 Group Finance Director
Dr Wilson Totten 45 Group Research and Development Director
Dr Barry Price 57 Senior Non-executive Director
Dr Bernard Canavan 65 Non-executive Director
Dr Zola Horovitz 66 Non-executive Director
Ronald Nordmann 59 Non-executive Director
Joseph Smith 61 Non-executive Director
Mr John Spitznagel 59 Non-executive Director
The brief biographical details of the Directors are as follows:
Dr James Cavanaugh joined the Board on March 24, 1997 and was appointed as
Non-executive Chairman with effect from May 11, 1999. Dr Cavanaugh is the
President of HealthCare Ventures LLC. Formerly he was President of SmithKline &
French Laboratories, the US pharmaceutical division of SmithKline Beecham
Corporation. Prior to that, he was President of SmithKline Beecham Corporation's
clinical laboratory business and, before that, President of Allergan
International. Prior to his industry experience, Dr Cavanaugh served as Deputy
Assistant to the President of the US for Health Affairs on the White House Staff
in Washington, DC. He is a Non-executive Director of MedImmune Inc., Diversa
Corporation and Versicor Inc.
Rolf Stahel joined Shire in March 1994 as Chief Executive from Wellcome plc
where he worked for 27 years. From April 1990 until February 1994, he served as
Director of Group Marketing reporting to the Chief Executive. A business studies
graduate of KSL Lucerne, Switzerland, he attended the 97th Advanced Managers
Program at Harvard Business School.
Angus Russell joined Shire on December 13, 1999 as Group Finance Director. Mr
Russell worked for ICI, Zeneca and AstraZeneca for a total of 19 years. His last
position was Vice President - Corporate Finance at AstraZeneca PLC, where he was
responsible for financial input into mergers and acquisitions activities,
management of tax, legal and finance structure, investor relations activities
and the management of various financial risks. Prior to this, he held a number
of positions within Zeneca Group PLC and ICI including Group Treasurer, Group
Investor Relations Manager, Strategic Planner, Marketing Manager and management
accounting roles in manufacturing and research and development operations. Mr
Russell is a chartered accountant, having qualified with Coopers & Lybrand and
is a member of the Association of Corporate Treasurers.
Dr Wilson Totten joined Shire in January 1998 as Group Research and Development
Director. Dr Totten is a medical doctor and has wide experience in the
pharmaceutical industry covering all phases of drug
27
development. He has substantial experience in the field of central nervous
system disorders. His last position was Vice President of Clinical Research and
Development with Astra Charnwood where he served from 1995 to 1997, having
previously worked for Fisons Pharmaceuticals from 1989 to 1995, and prior to
that with 3M Health Care and Eli Lilly. He is a Non-executive Director of Keryx
Biopharmaceuticals Inc.
Dr Barry Price joined the Board on January 24, 1996 having spent 28 years with
Glaxo holding a succession of key executive positions with Glaxo Group Research.
He is Chairman of Antisoma plc and also Biowisdom Ltd. He is also on the board
of directors of Pharmgene plc and Chemunex S.A. Dr Price is Chairman of the
Remuneration Committee.
Dr Bernard Canavan joined the Board as a Non-executive Director on March 11,
1999. Dr Canavan is a medical doctor. He was employed by American Home Products
for over 25 years until he retired in January 1994. He was president of that
corporation from 1990 to 1994, and prior to that was Chairman and Chief
Executive Officer of American Home Products, Pharmaceutical Division,
Wyeth-Ayerst Laboratories. Dr Canavan is a Director of Magainin Pharmaceuticals
Inc. ,and 3-Dimensional Pharmaceuticals Inc. Dr Canavan is Chairman of the Audit
Committee.
Dr Zola Horovitz, Ph.D. joined the Board on December 23, 1999 having previously
served as a Director of Roberts Pharmaceutical Corporation since October 1996.
Dr Horovitz has been self-employed as a consultant in the biotechnology and
pharmaceutical industries since 1994. From 1959 to 1994 Dr Horovitz held various
positions at Squibb Corporation and its successor corporation, Bristol-Myers
Squibb & Co, including that of Vice President, Business Development and
Planning. Dr Horovitz received undergraduate and masters degrees and a Ph.D.
from the University of Pittsburgh. Dr Horovitz is also a Director of Avigen
Inc., Diacrin Inc., Biocryst Pharmaceuticals, Inc., Palitin Technologies Inc.,
Magainin Pharmaceuticals Inc., Synaptic Inc. and 3-Dimensional Pharmaceuticals
Inc.
Ronald Nordmann joined the Board on December 23, 1999 having previously served
as a Non-executive Director of Roberts Pharmaceutical Corporation since May 1999
and has been a financial analyst in healthcare securities since 1971. From
September 1994 to January 2000 he was an analyst and partner at Deerfield
Management. He has held senior positions with PaineWebber, Oppenheimer & Co., F.
Eberstadt & Co., and Warner-Chilcott Laboratories, a division of Warner-Lambert.
Mr Nordmann received his undergraduate degree from The John Hopkins University
and an M.B.A. from Fairleigh Dickinson University. Mr Nordmann is also a
Director of Guilford Pharmaceuticals Inc., Global Health Associates, LLC and
Boron, Lepore & Associates, Inc.
Joseph Smith joined the Board on December 23, 1999 having previously served as a
Non-executive Director of Roberts Pharmaceutical Corporation since August 1998.
From 1989 to 1997, Mr Smith served in various positions at Warner-Lambert
Company, including President of Parke-Davis Pharmaceuticals and President of
Shaving Products Division (Schick and Wilkinson Sword). Mr Smith previously held
positions at Johnson & Johnson and served as President of Rorer Pharmaceutical
Corporation. Mr Smith received his undergraduate degree from the University of
Buffalo and an M.B.A. degree from the Wharton School of the University of
Pennsylvania. Mr Smith is a Non-executive Director of Avanir Pharmaceuticals,
Boron, Lepore & Associates, Inc., Web MD Corporation and Vivus, Inc.
John Spitznagel joined the Board on December 23, 1999 having previously served
as President and Chief Executive Officer of Roberts Pharmaceutical Corporation
since September 1997 and as a director since July 1996. He was Executive Vice
President - Worldwide Sales and Marketing of Robertsfrom March 1996 to September
1997, having served as President of Reed and Carnrick Pharmaceuticals from
September 1990 until July 1995. He previously served as Chief Executive Officer
of BioCryst Pharmaceuticals, Inc. having held before that various sales,
marketing and management positions in the industry. Mr Spitznagel is a Director
of Boron, Lepore & Associates, Inc. and Questcor Pharmaceuticals, Inc. He
received his undergraduate degree from Rider University and his M.B.A from
Fairleigh Dickinson University.
28
PART II
ITEM 5: Market for the Registrant's Common Equity and Related Stockholder
Matters
Ordinary Shares
Our ordinary shares are traded on the London Stock Exchange ("LSE"). The
following table presents the per share closing mid-market quotation for our
ordinary shares as quoted in the Daily Official List of the LSE for the periods
indicated.
High Low
---- ---
(pound) per Ordinary Share (pound) per Ordinary Share
-------------------------- --------------------------
Year ended December 31, 1999
1st Quarter 5.17 3.74
2nd Quarter 5.28 3.96
3rd Quarter 6.13 4.74
4th Quarter 7.34 5.59
Year ended December 31, 2000
1st Quarter 14.28 5.98
2nd Quarter 12.40 7.37
3rd Quarter 13.69 11.35
4th Quarter 14.92 9.53
The number of record holders of Ordinary Shares as of February 27, 2001 was as
follows:
U.S. holders 79
Total 8,705
American Depository Shares
American Depository Shares (each representing three ordinary shares)
evidenced by American Depository Receipts issued by Morgan Guaranty Trust
Company of New York, as depository, are quoted on the Nasdaq National Market. As
of February 13, 2001, the proportion of Ordinary Shares represented by American
Depository Receipts was 26.51 % of the Ordinary Shares outstanding.
The following table presents, for the quarters indicated, the high and low
market quotations for the ADSs quoted on the Nasdaq National Market.
High Low
$ per ADS $ per ADS
--------- ---------
Year ended December 31, 1999
1st Quarter 25.50 19.13
2nd Quarter 26.00 18.88
3rd Quarter 29.31 23.75
4th Quarter 35.06 26.19
Year ended December 31, 2000
1st Quarter 67.19 28.31
2nd Quarter 59.75 33.19
3rd Quarter 60.63 51.38
4th Quarter 65.00 42.06
29
The number of record holders of American Depository Shares in the United
States as of February 27, 2001 was 407. Since certain of the ADRs are held by
broker nominees, the number of record holders may not be representative of the
number of beneficial owners.
Dividend Policy
Historically, we have not paid any dividends. We do not anticipate paying
any dividends on ordinary shares, or indirectly on ADSs, in the foreseeable
future. As a matter of English law, we may pay dividends only out of our
distributable profits, which are accumulated realized profits under U.K. GAAP,
so far as not previously utilized by distribution or capitalization, less
accumulated realized losses, so far as not previously written off in a reduction
or reorganization of capital duly made. As of December 31, 2000, we had an
accumulated deficit of (pound)4.4 million (approximately $6.5 million). Future
dividend policy will be dependant upon our distributable profits, our financial
condition, the terms of any then existing debt facilities and other relevant
factors existing at that time.
30
ITEM 6: Selected Financial Data
The results for the three periods ended December 31, 1998 have been
restated to reflect the combined results of Shire and Roberts Pharmaceutical
Corporation. The merger was accounted for as a pooling of interests. The
selected consolidated financial data for the Company should be read in
conjunction with "Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Company's consolidated
financial statements and related notes appearing elsewhere in this report.
Years ended December 31,
2000 1999 1998 1997 1996
$'000 $'000 $'000 $'000 $'000
------------- ------------- ------------- ------------- -------------
Revenues 517,608 401,532 308,984 191,554 127,772
Operating expenses (395,344) (477,600) (285,748) (277,395) (183,086)
Income/(loss) from operations 122,264 (76,068) 23,236 (85,841) (55,314)
Interest and other, net (6,076) (2,868) 327 3,109 3,236
Income/(loss) from continuing
operations before taxes 116,188 (78,936) 23,563 (82,732) (52,078)
Income taxes (40,017) (16,062) (2,991) (1,420) 15,815
Income/(loss) from continuing
operations 76,171 (94,998) 20,572 (84,152) (36,263)
Income from discontinued
operations, net of tax - - - - 556
Net income/(loss) 76,171 (94,998) 20,572 (84,152) (35,707)
Income/(loss) from continuing
operations per share - basic $ 0.30 $ (0.39) $ 0.09 $ (0.45) $ (0.31)
Income/(loss) from continuing
operations per share - diluted $ 0.29 $ (0.39) $ 0.08 $ (0.45) $(0.31)
Net income/(loss) per share -
basic $ 0.30 $ (0.39) $ 0.09 $ (0.45) $(0.31)
Net income/(loss) per share -
diluted $ 0.29 $ (0.39) $ 0.08 $ (0.45) $(0.31)
Weighted average number of shares
outstanding - basic 252,497 244,699 234,045 185,153 118,766
Weighted average number of shares
outstanding - diluted 260,345 244,699 242,806 185,153 118,766
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents 46,598 54,082 52,973 59,868 96,056
Total assets 1,004,732 887,763 873,605 664,930 435,338
Long-term debt 126,364 126,314 126,774 10,327 10,639
Shareholders' equity 752,759 587,284 663,314 565,920 361,365
------------- ------------- ------------- ------------- -------------
31
ITEM 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The results for the year ended December 31, 1998 have been restated from
prior periods to reflect the merger of Shire Pharmaceuticals Group plc and
Roberts Pharmaceutical Corporation as if the merger had occurred on January 1,
1998.
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes appearing elsewhere in this
report.
Results of Operations
Years Ended December 31, 2000 and 1999
Overview
For the year ended December 31, 2000, total revenue increased by 29% to
$517.6 million, compared to $401.5 million in fiscal 1999. This increase was
primarily the result of an increase in product sales. Product sales in the U.S.
continue to represent a significant percentage of worldwide sales, increasing to
83% in 2000 from 81% in 1999. Net income for the year ended December 31, 2000
was $76.2 million as compared to a net loss in 1999 of $95.0 million. The prior
year results include approximately $97.1 million in non-recurring asset
impairment and restructuring charges and $32.3 million for merger transaction
expenses.
The Company manages and controls the business on geographic lines. The
three reportable segments are the U.S., Europe and the rest of the world.
Additional information regarding segments is provided in Note 20 to the
consolidated financial statements.
Product sales
The following table presents the Company's net product sales by operating
segment:
Product sales by segment 2000 change 1999 change 1998
------------------------ ---- ------ ---- ------ ----
$m % $m % $m
U.S. 414 + 32.2% 314 + 38.3% 227
Europe 61 + 10.2% 55 + 10.0% 50
Rest of World 23 + 38.0% 16 + 13.0% 15
----------- ----------- ----------- ----------- ----------
Total product sales 498 29.3% 385 32.3% 292
======= ======= ======= ======= =======
For the year ended December 31, 2000, total product sales increased by 29% to
$498.1 million, compared to $385.2 million in the prior year. Of the Company's
total product sales, approximately 45% related to Adderall and DextroStat, the
Company's products marketed in the U.S. for the treatment of ADHD. On a combined
basis, these products increased their share of the total U.S. ADHD prescriptions
written from 30.5% in December 1999 to 35.9% in December 2000.
32
Cost of sales
For the year ended December 31, 2000 cost of sales amounted to 18% of
product sales as compared to 24% in 1999. Overall, the higher margin products
such as Adderall, Pentasa, and Agrylin have continued to grow at a faster rate
than the lower margin products, contributing a higher proportion of sales in the
year ended December 31, 2000 (65%) than in the preceding year (59%).
Research and development
Research and development expenditure increased from $77.5 million in 1999
to $106.1 million in 2000, representing an increase of 37%. This increase
reflects the significant portion of development projects at Phase II or later
where development costs are higher. As a proportion of total revenues research
and development expenditure is 21%.
Selling, general and administrative expenses
Selling, general and administrative expenses, excluding the effects of a
stock option compensation charge of $21.9 million (1999: $11.9 million),
increased by $17.9 million from $130.9 million in 1999 to $148.7 million in
fiscal 2000. As a percentage of product sales, selling, general and
administrative expenses fell by 4% to 30%. Increases in sales and marketing
expenses in the U.S., including the recruitment of new sales representatives in
the fourth quarter of the year, have been more than offset by merger cost
savings and a one off settlement from pending litigation with Rhone-Poulenc
Rorer, Inc.
A significant component of selling, general and administrative expenses are
depreciation and amortization charges, which increased from $28.6 million in
1999 to $30.5 million in 2000.
Interest income and expense
In the year ended December 31, 2000 the Company received interest income of
$6.2 million compared with $7.3 million in 1999. This decrease reflects the
average cash balances held during the year. Cash and cash equivalents during the
early part of 2000 were lower than in the comparative period because of the cash
outflows associated with the Group's restructuring activities. Interest expense
increased from $9.7 million in 1999 to $12.2 million in 2000, reflecting an
increase in underlying rates of interest of approximately 1% and a full year's
interest change on the convertible loan notes.
Income Taxes
For the year ended December 31, 2000, income taxes increased $23.9 million
from $16.1 million to $40.0 million. The Company's effective tax rate in 2000
was 29% (1999: 29%). The Company has recorded net deferred tax assets of
approximately $33.3 million (December 31, 1999: $37.1 million). Realization is
dependent upon generating sufficient taxable income to utilize such assets.
Although realization on these tax assets is not assured, management believes it
is more likely than not that the deferred tax assets will be realized.
Years Ended December 31, 1999 and 1998
Overview
On December 23, 1999, Shire and Roberts merged in a tax-free exchange of
shares. Shire exchanged 1.0427 ADSs for each common share of Roberts. This
transaction was accounted for as a pooling of interests. Merger transaction
expenses and merger related restructuring costs totaling $75.9 million are
reflected in Shire's 1999 results of operations.
33
Total revenues
For the year ended December 31, 1999, total revenue increased by 30% to
$401.5 million, compared to $309.0 million in fiscal 1998. This increase was
primarily the result of an increase in product sales.
Product sales
For the year ended December 31, 1999, total product sales increased by 32%
to $385.2 million, compared to $291.8 million in the prior year. Of the
Company's total product sales, 39% related to Adderall and DextroStat for the
treatment of ADHD. On a combined basis, these products increased their share of
the total U.S. ADHD prescriptions written from 20.4% in December 1998 to 30.5%
in December 1999.
Other significant contributors to the increase in product sales in 1999
were the U.S. marketed products Pentasa, Carbatrol and Agrylin. The Company
acquired Pentasa, licensed for the treatment of ulcerative colitis, in the
second quarter of 1998, and recorded sales of $51.8 million in 1999 compared to
$33.3 million in 1998. Carbatrol increased its share of the total U.S. extended
release carbamazepine prescriptions written to 22.8% at December 31, 1999 from
8.5% in December 1998 and Agrylin sales grew 37% over 1998 to $32.6 million in
1999.
Cost of sales
For the year ended December 31, 1999 cost of sales amounted to 24% of
product sales as compared to 33% in 1998. The decrease in cost of sales
percentage and corresponding increase in gross margin is attributable to an
improved product mix to the faster growth of products with a higher gross
margin.
Costs and expenses
In 1999 the Company recorded charges totaling $135.2 million pre-tax for
asset impairments ($48.5 million), merger-related transaction expenses ($32.3
million), restructuring ($43.6 million), loss on product dispositions ($5.8
million) and other charges ($5.0 million). These charges are disclosed
separately within operating expenses in the consolidated statements of income.
The Company recorded an impairment charge of $34.2 million to adjust
intangible asset values, primarily product rights, to their estimated fair
value. These charges are consistent with the Company's accounting policy to
review periodically the carrying value of the intangibles and evaluate whether
there has been any impairment in the carrying value of those intangibles. The
estimated fair value has been calculated using projected discounted cash flows
of the products. Other asset impairments included the write off of inventory
held for research and development work and duplicate equipment ($3.2 million),
adjustments to the carrying value of the RiboGene investment to market value at
the year end ($ 7.6 million), and write down of receivables to their estimated
realizable value ($3.5 million).
The components of the restructuring charge are as follows:
$m
Employee termination costs 37.9
Property 5.7
-------
43.6
=======
34
In December 1999, the decision was made to close the Roberts' office
facility in Eatontown, New Jersey and consolidate the sales and marketing
operations into the existing Shire facility in Florence, Kentucky and to
transfer the research and development activities to Shire's facility in
Rockville, Washington. Similarly, Roberts' sales and marketing operation in the
U.K. was combined with Shire's established operation in Andover, Hampshire. The
office facility in Eatontown was closed as of April 28, 2000 while the U.K.
duplicate facility was closed on March 10, 2000. The Company completed the sale
of the Eatontown facility during the third quarter of 2000.
As a result of the restructuring and elimination of duplicate facilities,
the Company identified a number of sales and marketing, research and development
and administrative positions to be terminated. These employees were notified of
their termination prior to December 31, 1999. The employee termination costs
consisted of payments for severance, medical and other benefits, outplacement
counseling, acceleration of pension benefits and excise taxes. The Company
completed the restructuring program during the fourth quarter of 2000, and the
restructuring reserve of $43.6 million was fully utilized by December 31, 2000.
Merger cost savings exceeded the Company's target of $20 million for the year
ended December 31, 2000.
Research and development
Research and development expenditure increased from $59.3 million in 1998
to $77.5 million in 1999, representing an overall increase of 31%. This increase
reflects the significant portion of development projects at Phase II or later
where development costs tend to be higher.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $39.7 million from
$131.7 million in 1998 to $171.4 million in fiscal 1999, primarily due to an
increase in size of the U.S. sales force and higher levels of marketing
expenditure. As a percentage of total revenues, selling, general and
administrative expenses were constant at approximately 43% in 1998 and 1999. A
significant component of selling, general and administrative expenses is
amortization, which increased from $22.0 million in 1998 to $24.4 million in
1999, due to the addition of the Pentasa and Agrylin product rights.
Interest income and expense
In the year ended December 31, 1999 the Company received interest income of
$7.3 million compared with $6.4 million in 1998. Interest expense increased from
$6.5 million in 1998 to $9.7 million in 1999 as a result of a full year's
interest expense from the financing of the Pentasa acquisition.
Income Taxes
For the year ended December 31, 1999, income taxes increased $13.1 million
from $3.0 million to $16.1 million. The Company's effective tax rate in 1999
(before merger related transaction expenses, restructuring costs and asset
impairments) was 29%. The Company has recorded net deferred tax assets of
approximately $37 million. Realization is dependent upon generating sufficient
taxable income to utilize such assets. Although realization on these tax assets
is not assured, management believes it is more likely than not that the deferred
tax assets will be realized.
Liquidity and Capital Resources
The Company has financed its operations since inception through private and
public offerings of equity securities, the issuance of loan notes, collaborative
licensing and development fees, product sales and investment income.
35
The Company's funding requirements depend on a number of factors, including
the Company's product development programs, business and product acquisitions,
the level of resources required for the expansion of marketing capabilities as
the product base expands, increased investment in accounts receivable and
inventory which may arise as sales levels increase, competitive and
technological developments, the timing and cost of obtaining required regulatory
approvals for new products, and the continuing revenues generated from sales of
its key products.
As of December 31, 2000 and 1999, the Company had cash, cash equivalents
and marketable securities of $186.3 million and $138.4 million, respectively
which consisted of immediately available money market fund balances and
investment grade securities.
Debt
In 1998, the Company acquired the product rights to Pentasa. The majority
of the purchase price was financed through a credit agreement between Roberts,
Credit Suisse First Boston ("CSFB"), previously known as DLJ Capital Funding
Inc. and various other lenders. Under this credit agreement, the merger of Shire
and Roberts constituted a change of control which triggered the acceleration of
the repayment of the principal amounts outstanding. On November 19, 1999,
Roberts, Shire's U.S. subsidiaries and Shire entered into an agreement with CSFB
to replace the existing credit agreement with a $250 million credit facility
consisting of a $125 million five-year revolving credit facility and a $125
million five-year term loan facility. In connection with the credit facility,
the Company is subject to certain affirmative and negative covenants and
maintenance tests that require the Company to maintain a net minimum worth, a
specified leverage ratio and a specific coverage ratio. At December 31, 2000 the
Company satisfied the aforementioned covenants and maintenance tests.
Capital expenditure
Capital expenditure in the year ended December 31, 2000 of approximately
$28.4 million included the purchase of the Group's new head office facility in
Basingstoke, Hampshire, U.K. for approximately $17.4 million.
Capital expenditures in fiscal 1999 of approximately $4.8 million were
principally for the upgrade and expansion of sales and administration functions.
Expenditure in 1998 of approximately $13.9 million primarily relates to an
upgrade of the manufacturing facility in Canada and significant investments in
new computer hardware and software.
Product acquisitions
In May 2000, the Company acquired certain European and Nordic rights to
balsalazide, a treatment for ulcerative colitis, from Salix Pharmaceuticals Ltd.
In the year ended December 31, 2000 the Company paid a total of approximately
$15.9 million under the agreement which included $2.5 million by way of the
issue of 160,546 new Shire ordinary shares.
In November 2000, the Company acquired extended distribution and other
ancilliary rights for ProAmatine from Nycomed for approximately $21 million,
including the ending of royalty obligations to Nycomed which enhanced gross
margins of this product.
Business combinations and divestitures
During October and November 1999 the Company acquired the European sales
and marketing subsidiaries from Fuisz Technologies Ltd. The operations located
in France, Germany and Italy were acquired for approximately $39.5 million in
cash. A substantial portion of the purchase price was allocated to intangible
assets, which are amortized over 20 years.
On December 23, 1999 Shire, and Roberts merged in a tax-free exchange of
shares. This transaction was accounted for as a pooling of interests. Shire
exchanged 1.0427 ADSs for each common
36
share of Roberts. Merger transaction expenses and merger-related restructuring
costs totaled $75.9 million. These charges are disclosed separately in operating
expenses.
On January 13, 1999 Shire disposed of its Indianapolis manufacturing plant
for a net consideration after expenses of $1.5 million including a loan note of
$0.5 million. The net gain of $0.8 million is included in results of operations.
During November 1999, the Company sold the product Tigan for $6.4 million. The
Company incurred a loss on disposal of $5.8 million, which is included within
the results of operations.
Other commitments
Information regarding other commitments is disclosed in Note 18 to the
consolidated financial statements.
Foreign currency fluctuations
The Group's parent company and a number of subsidiary operations are
located outside the U.S. As such, the consolidated financial results are subject
to fluctuations in exchange rates, particularly those between the U.S. dollar
and British pound. The accumulated foreign currency translation differences are
reported within accumulated other comprehensive income.
Concentration of credit risk
Financial instruments that potentially expose the Company to concentrations
of credit risk consist primarily of short-term cash investments and trade
accounts receivable.
As revenues are mainly derived from agreements with major pharmaceutical
companies and relationships with drug distributors, and such clients typically
have significant cash resources, any credit risk associated with these
transactions is considered minimal. The Company operates credit evaluation
procedures.
Excess cash is invested in short-term money market instruments, including
bank and building society term deposits and commercial paper from a variety of
companies with strong credit ratings. These investments typically bear minimal
risk.
Inflation
Although at reduced levels in recent years, inflation continues to apply
upward pressure on the cost of goods and services used by the Company. However,
management believes that the net effect of inflation on the Company's operations
has been minimal during the past three years.
Year 2000
The Company experienced no significant Year 2000 compliance issues and Year
2000 issues did not have a material effect on its business, results of
operations, or financial condition.
Euro Conversion
On January 1, 1999, the European Economic and Monetary Union ("EMU")
introduced the Euro as the official currency of the 11 participating member
countries. On that date, the currency exchange rates of the participating
countries were fixed against the Euro. There is a three year transition to the
Euro, and at the end of 2001 the currency will come into circulation and
national currencies will be withdrawn by July 2002.
The U.K. did not participate in the EMU at the commencement of the third
stage on January 1, 1999 and it is uncertain whether or on what terms the U.K.
would be permitted to join at a later date. There can be no prediction as to
whether the U.K. will participate in the EMU or as to the rate at which the
pound sterling
37
would be converted into the Euro. Furthermore, there can be no prediction as to
the likely impact on the U.S. dollar/sterling exchange rate of a decision by the
U.K. to participate in the EMU.
It is anticipated that the pricing of goods and services will be more
transparent through the use of a single currency within the participating member
states. Competition is likely to increase with the greater price transparency
and removal of exchange rate risk. In the longer term more general price
convergence is likely, assuming the EMU leads to greater harmonization of
healthcare policies across the participating member states.
Shire has sales and marketing operations in the Republic of Ireland,
France, Germany, Spain and Italy and therefore there may be some impact on the
Company's business and competitive position as a result of the increased price
transparency.
The Company has reviewed its financial and operating systems and is
satisfied that the introduction of the Euro will not cause any disruption to the
business, and that the systems are in place to receive and make payments in
Euros. Shire will continue to monitor the U.K.'s stance in relation to
participation in the Euro and assess the impact of any significant changes in
policy.
38
ITEM 7A: Quantitative and Qualitative Disclosures About Market Risk
Shire's principal treasury operations are managed by the Group's treasury
function based in the U.K. in accordance with the Group's treasury policies and
procedures which are approved by Shire's Board. As a matter of policy, Shire
does not undertake speculative transactions which would increase its currency or
interest rate exposure.
The Company is subject to market risk exposure in the following areas:
o Interest rate market risk
The Company has cash and cash equivalents on which interest income is
earned at variable rates.
The Company also has a $250 million credit facility including a $125
million five-year revolving credit facility (including a $25 million
letter of credit facility) and a $125 million five-year term loan
facility. The applicable interest rate on the credit facility ranges
between 0.5% and 1.5% over the prime rate of Credit Suisse First
Boston or the Federal Funds Rate plus 0.5% or between 1.5% and 2.5%
over the London Interbank Overnight rate, in each case depending on
Shire's credit rating. The facility is secured by all material
property owned by Shire and its subsidiaries and the capital stock of
Shire's subsidiaries. If Shire's credit rating reaches specified
levels, the facility will not be secured. The facility contains
customary covenants and additional maintenance tests that require
Shire to maintain a minimum net worth, a specified leverage ratio and
a specified coverage ratio.
The Company has no amounts due in respect of debt denominated in
foreign currencies.
As at December 31, 2000 and 1999 the Company had utilized the $125
million five-year term loan facility but no other amounts were drawn
in respect of the remaining $125 million five-year revolving credit
facility. The $125 million five-year term loan is repayable on
December 23, 2004.
o Foreign exchange market risk
The Group's parent company and a number of subsidiary operations are
located outside the U.S. As such, the consolidated financial results
are subject to fluctuations in exchange rates, particularly between
the British pound and Canadian dollar against the U.S. dollar. The
financial statements of foreign entities are translated using the
accounting policies described in Note 1 of the Notes to the
Consolidated Financial Statements. The exposure to foreign exchange
market risk is managed by the Group's treasury function, using
forecasts provided by the operating units.
There have been no significant changes to the Company's exposure to market
risks during the year ended December 31, 2000.
39
ITEM 8: Financial Statements and Supplementary Data
The consolidated financial statements and supplementary data of the Company
called for by this item are submitted as a separate section of this report.
ITEM 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable
40
PART III
ITEM 10: Directors and Executive Officers of the Registrant
The information relating to directors of the Company required to be furnished
pursuant to this item is incorporated herein by reference to these sections
entitled "Election of Directors" and "Compliance with Section 16(a) of the
Securities Exchange Act" from the Company's definitive Proxy Statement for its
Annual Meeting of Shareholders to be held in May 2001. Certain information
relating to executive officers of the Company is set forth in Item 4A of Part I
of this Form 10-K under the caption "Executive Officers of the Registrant".
ITEM 11: Executive Compensation
Information pertaining to executive compensation is incorporated herein by
reference to the section entitled "Election of Directors - Executive
Compensation" from the Company's definitive Proxy Statement for its Annual
Meeting of Shareholders to be held in May or June 2001.
ITEM 12: Security Ownership of Certain Beneficial Owners and Management
Information pertaining to security ownership of certain beneficial owners and
management is incorporated herein by reference to the sections entitled
"Principal Shareholders" and "Security Ownership of Management" from the
Company's definitive Proxy Statement for its Annual Meeting of Shareholders to
be held in May or June 2001.
ITEM 13: Certain Relationships and Related Transactions
Any information relating to this item is incorporated herein by reference from
the Company's definitive Proxy Statement for its Annual Meeting of Shareholders
to be held in May or June 2001.
41
PART IV
ITEM 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. and 2. Financial Statements and Financial Statement Schedules
Reference is made to the Index of the Financial Statements and Financial
Statement Schedules hereinafter contained (see F-1).
3. Exhibits
Reference is made to the Index of Exhibits herein contained (see E-1).
(b) Reports on Form 8-K
During the fourth quarter ended December 31, 2000, the following report on
Form 8-K was filed by the Company with the Securities and Exchange
Commission:
Form 8-K (Item 5 - Other Events), date of earliest event reported December
11, 2000, with respect to a Merger Agreement with BioChem Pharma Inc.
42
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SHIRE PHARMACEUTICALS GROUP PLC
(Registrant)
Date: February 27, 2001
By: /s/ Rolf Stahel
Rolf Stahel, Chief Executive
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ James Henry Cavanaugh Non-executive Chairman February 27, 2001
-------------------------
JAMES HENRY CAVANAUGH
/s/ Rolf Stahel Chief Executive February 27, 2001
---------------
ROLF STAHEL
/s/ Angus Charles Russell Group Finance Director February 27, 2001
-------------------------
ANGUS CHARLES RUSSELL
/s/ Joseph Wilson Totten Group Research and Development February 27, 2001
------------------------ Director
JOSEPH WILSON TOTTEN
/s/ Barry John Price Senior Non-executive Director February 27, 2001
--------------------
BARRY JOHN PRICE
/s/ Bernard Canavan Non-executive Director February 27, 2001
-------------------
BERNARD CANAVAN
/s/ Zola Philip Horovitz Non-executive Director February 27, 2001
------------------------
ZOLA PHILIP HOROVITZ
/s/ Ronald Maurice Nordmann Non-executive Director February 27, 2001
---------------------------
RONALD MAURICE NORDMANN
/s/ Joseph Edward Smith Non-executive Director February 27, 2001
-----------------------
JOSEPH EDWARD SMITH
/s/ John Tetje Spitznagel Non-executive Director February 27, 2001
-------------------------
JOHN TETJE SPITZNAGEL
43
SHIRE PHARMACEUTICALS GROUP PLC
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1999 and 2000
Consolidated Statements of Income for the years ended
December 31, 1998, 1999 and 2000
Consolidated Statements of Comprehensive Income for the years
ended December 31, 1998, 1999 and 2000
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1998, 1999 and 2000
Notes to the Consolidated Financial Statements
Schedules
Schedule II, Valuation and Qualifying Accounts
44
Report of Independent Public Accountants
To the Shareholders of Shire Pharmaceuticals Group plc:
We have audited the accompanying consolidated balance sheets of Shire
Pharmaceuticals Group plc and its subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of income, comprehensive income,
shareholders' investment and cash flows for the years ended December 31, 2000,
1999 and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We did not audit the financial statements for the year ended December 31,
1998 of Roberts Pharmaceutical Corporation, a company acquired during 1999 in a
transaction accounted for as a pooling of interests. Such statements are
included in the consolidated financial statements of Shire Pharmaceuticals Group
plc and reflect total assets and total revenues of 60% and 57% respectively for
the year ended December 31, 1998. These statements were audited by other
auditors whose report has been furnished to us and our opinion, insofar as it
relates to amounts included for Roberts Pharmaceutical Corporation for the year
ended December 31, 1998, is based solely upon the report of the other public
accountants.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
public accountants provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other public
accountants, the financial statements referred to above present fairly, in all
material respects, the financial position of Shire Pharmaceuticals Group plc and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years ended December 31, 2000, 1999 and
1998 in conformity with accounting principles generally accepted in the United
States.
Our audit opinion was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for the purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion based on our audit and report of the other public accountants, fairly
states in all material aspects, the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Arthur Andersen
Reading, England
February 14, 2001
45
Report of Independent Auditors
To the Board of Directors
Roberts Pharmaceutical Corporation
We have audited the consolidated balance sheet of Roberts Pharmaceutical
Corporation (the "Company") as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity and cash flow for
the year ended December 31, 1998, which are not separately presented herein. Our
audit also included the financial statement schedule of Roberts Pharmaceutical
Corporation, not separately presented herein, listed in the Index at Item 14(a)
of the Roberts Pharmaceutical Corporation Annual Report on Form 10-K/A. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatement. An audit includes examining on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company at December 31, 1998 and the consolidated results of their
operations and their cash flow for the year ended December 31, 1998 in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole present fairly in
all material respects, the information set forth therein for 1998.
Ernst & Young LLP
MetroPark, New Jersey
February 16, 1999
46
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)
December 31, December 31,
2000 1999
$'000 $'000
ASSETS
Current assets:
Cash and cash equivalents 46,598 54,082
Marketable securities and other current asset investments 139,745 84,344
Accounts receivable, net 93,830 59,018
Inventories, net 47,109 39,538
Deferred tax asset 26,971 5,312
Prepaid expenses and other current assets 9,736 9,012
------------ ------------
Total current assets 363,989 251,306
Investments 6,139 2,604
Property, plant and equipment, net 49,685 37,484
Intangible assets, net 556,013 557,934
Deferred tax asset 6,298 31,799
Other assets 22,608 6,636
------------ ------------
Total assets 1,004,732 887,763
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt 1,448 9,608
Accounts and notes payable 99,437 114,509
Other current liabilities 10,528 48,703
------------ ------------
Total current liabilities 111,413 172,820
Long-term debt, excluding current installments 126,364 126,314
Other non-current liabilities 14,196 1,345
------------ ------------
Total liabilities 251,973 300,479
------------ ------------
Shareholders' equity:
Common stock, 5p par value; 400,000,000 shares authorized; and
257,088,451 shares issued and outstanding (1999: 244,519,024) 21,035 20,063
Additional paid-in capital 938,493 832,650
Accumulated other comprehensive losses (27,814) (10,303)
Accumulated deficit (178,955) (255,126)
------------ ------------
Total shareholders' equity 752,759 587,284
------------ ------------
Total liabilities and shareholders' equity 1,004,732 887,763
------------ ------------
The accompanying notes are an integral part of these consolidated financial statements.
47
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except share and per share data)
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
------------ ------------ ------------
Revenues:
Product sales 498,092 385,203 291,785
Licensing and development 14,147 10,772 11,821
Royalties 4,107 3,562 3,697
Other revenues 1,262 1,995 1,681
------------ ------------ ------------
Total revenues 517,608 401,532 308,984
Costs and expenses:
Cost of revenues 88,158 93,475 95,013
Research and development 106,131 77,503 59,253
Selling, general and administrative (inclusive of stock option
compensation charge of $21,914, $11,933 and $5,497 respectively)
201,055 171,386 131,702
Other charges:
Asset impairments and restructuring charges - 97,132 -
Merger transaction expenses - 32,279 -
Loss/(profit) on sale of product rights - 5,825 (220)
------------ ------------ ------------
Total operating expenses 395,344 477,600 285,748
------------ ------------ ------------
Operating income/(loss) 122,264 (76,068) 23,236
Interest income 6,216 7,349 6,398
Interest expense (12,187) (9,742) (6,511)
Other (expenses)/income (105) (475) 440
------------ ------------ ------------
Total other (expenses)/income (6,076) (2,868) 327
------------ ------------ ------------
Income/(loss) before income taxes 116,188 (78,936) 23,563
Income taxes (40,017) (16,062) (2,991)
------------ ------------ ------------
Net income/(loss) 76,171 (94,998) 20,572
------------ ------------ ------------
Net income/(loss) per share:
Basic $0.30 $(0.39) $0.09
Diluted $0.29 $(0.39) $0.08
Weighted average number of shares:
Basic 252,497,255 244,698,721 234,044,732
Diluted 260,344,932 244,698,721 242,806,410
The accompanying notes are an integral part of these consolidated financial statements.
48
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands of U.S. dollars except share data)
Accumulated
Additional Accumu- other comp- Total
Common Common paid-in lated prehensive shareholders'
stock stock capital deficit losses equity
$'000 no. shares $'000 $'000 $'000 $'000
----------- ------------ ------------- ------------- -------------- ---------------
Balances as of
December 31, 1997 10,345 124,531 738,637 (180,666) (2,396) 565,920
Net income - - - 20,572 - 20,572
Dividends paid by pooled
entity - - - (34) - (34)
Foreign currency translation
- - - - (840) (840)
Issuance of common stock
905 10,861 57,110 - - 58,015
Issuance of common stock by
pooled entity - - 9,220 - - 9,220
Issuance costs - - (2,124) - - (2,124)
Options exercised 475 5,700 3,607 - - 4,082
Stock option compensation
- - 5,497 - - 5,497
Tax benefit associated with
exercise of stock options
- - 3,006 - - 3,006
----------- ------------ ------------- ------------- -------------- ---------------
Balances as of
December 31, 1998 11,725 141,092 814,953 (160,128) (3,236) 663,314
Net loss - - - (94,998) - (94,998)
Foreign currency translation
- - - - (7,067) (7,067)
Issuance of common stock
for acquisitions 8,123 100,767 (8,123) - - -
Issuance of common stock by
pooled entity - - 8,615 - - 8,615
Options exercised 215 2,660 3,308 - - 3,523
Stock option compensation
- - 11,933 - - 11,933
Tax benefit associated with
exercise of stock options
- - 1,964 - - 1,964
----------- ------------ ------------- ------------- -------------- ---------------
Balances as of
December 31, 1999 20,063 244,519 832,650 (255,126) (10,303) 587,284
49
Net income - - - 76,171 - 76,171
Unrealized holding loss on
marketable securities
- - - - (48) (48)
Foreign currency translation
- - - - (17,463) (17,463)
Issuance of common stock
137 1,843 11,720 - - 11,857
Issue costs - - (3,385) - - (3,385)
Options exercised 835 10,726 44,812 - - 45,647
Stock option compensation
- - 21,914 - - 21,914
Tax benefit associated with
exercise of stock options
- - 30,782 - - 30,782
----------- ------------ ------------- ------------- -------------- ---------------
Balances as of
December 31, 2000 21,035 257,088 938,493 (178,955) (27,814) 752,759
----------- ------------ ------------- ------------- -------------- ---------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSSES)
(In thousands of U.S. dollars)
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
------------- ------------- -------------
Net income/(loss) 76,171 (94,998) 20,572
Foreign currency translation adjustments (17,463) (7,067) (840)
Unrealized holding (loss)/gain on marketable securities and
non-current investments (48) (411) 96
------------- ------------- -------------
Comprehensive income/(loss) 58,660 (102,476) 19,828
------------- ------------- -------------
There are no tax effects related to the items included above.
The accompanying notes are an integral part of these consolidated financial statements
50
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
---------- ---------- ----------
Cash flows from operating activities:
Net income/(loss) 76,171 (94,998) 20,572
Adjustments to reconcile net income/(loss) to net cash provided by
operating activities:
Depreciation and amortization 30,475 28,598 25,249
Stock option compensation 21,914 11,933 5,497
Tax benefit of stock option compensation, credited directly to equity
30,782 1,964 3,006
Non cash exchange gains and losses (1,676) (664) (1,816)
(Gain)/loss on sale of fixed assets - (828) 16
Loss on sale of intangible assets 1,514 5,825 -
Write-down of investment - 7,546 -
(Increase)/decrease in accounts receivable (54,433) 16,272 (20,566)
Increase in inventory (7,571) (6,543) (5,170)
Decrease/(increase) in deferred tax asset 3,842 743 (4,420)
Increase in accounts payable 43,373 37,083 12,186
Reserve for restructuring charges (83,608) 83,608 -
---------- ---------- ----------
Net cash provided by operating activities 60,783 90,539 34,554
---------- ---------- ----------
Cash flows from investing activities:
(Investment in)/redemption of marketable securities (1,997) (7,940) 3,825
Increase in cash placed on short term deposit (53,404) (4,677) (35,664)
Purchase of long-term investment (3,591) - (10,000)
Purchase of subsidiary undertakings - (32,000) -
Expenses of acquisition (1,461) - (551)
Net cash acquired with subsidiary undertakings - 1,979 -
Purchase of intangible assets (38,379) (57,848) (142,258)
Purchase of fixed assets (28,359) (4,786) (13,871)
Proceeds from sale of intangible fixed assets - 6,575 1,033
Proceeds from sale of fixed assets 12,007 1,413 60
Collection on notes receivable 766 7,195 1,751
---------- ---------- ----------
Net cash used in investing activities (114,418) (90,089) (195,675)
---------- ---------- ----------
51
Cash flows from financing activities:
Long-term debt issued - - 125,000
Payments on long-term debt, capital leases and notes (8,110) (11,499) (11,708)
Payment of debt issuance costs - - (2,528)
Proceeds from issue of common stock, net 8,472 8,615 35,027
Proceeds from exercise of options 45,647 3,523 4,082
Proceeds from issue of preferred stock - - 4,494
Cash dividends paid - - (150)
---------- ---------- ----------
Net cash provided by financing activities 46,009 639 154,217
---------- ---------- ----------
Effect of foreign exchange rate changes on cash and cash equivalents
142 20 9
---------- ---------- ----------
Net (decrease)/increase in cash and cash equivalents (7,484) 1,109 (6,895)
Cash and cash equivalents at beginning of period 54,082 52,973 59,868
---------- ---------- ----------
Cash and cash equivalents at end of period 46,598 54,082 52,973
---------- ---------- ----------
Supplemental cash flow information:
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
---------- ---------- ----------
Interest paid 12,156 11,612 3,948
Income taxes paid 6,650 11,356 5,285
Non cash activities:
Notes issued for product acquisitions - 11,800 -
Notes received for sale of product rights - - 218
Common stock issued for product acquisitions 3,085 - 11,572
Common stock issued on conversion of zero-coupon note
8,772 - 14,042
Debt assumed on acquisition of subsidiaries - 3,300 -
Capitalized leases - - 131
The accompanying notes are an integral part of these consolidated financial statements
52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
a) Description of Operations and Principles of Consolidation
Shire Pharmaceuticals Group plc is an international specialty
pharmaceutical company with a strategic focus on four therapeutic areas: central
nervous system disorders, metabolic diseases, oncology and gastroenterology. The
Company's principal products include Adderall, for the treatment of ADHD,
Agrylin, for the treatment of thrombocythemia and Pentasa, for the treatment of
ulcerative colitis.
The Group has operations in the U.S., Europe and the rest of the world.
Within these geographic operating segments, revenues are derived from three
sources: sales of products by the Company's own sales and marketing operations,
licensing and development fees, and royalties.
The accompanying consolidated financial statements include the accounts of
Shire Pharmaceuticals Group plc and all its subsidiary undertakings after
elimination of intercompany accounts and transactions.
b) Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
c) Revenue Recognition
The Company's principal revenue streams and their respective accounting
treatments are discussed below. This is in accordance with SAB 101, under which
revenue is recognized when:
o there is persuasive evidence of an arrangement;
o delivery of products has occurred or services have been rendered;
o the seller's price to the buyer is fixed or determinable; and
o collectibility is reasonably assured.
(i) Product sales
Revenue for the sales of products is recognized as net revenue
upon shipment to customers. Provisions for certain rebates,
product returns and discounts to customers are provided for as
reductions to net revenue in the same period as the related sales
are recorded.
(ii) Licensing and development fees
Licensing and development fees represent revenues derived from
license agreements and from collaborative research and development
arrangements.
Initial license fees are not considered to be separable from the
associated research and development activities, even where such
fees are non-refundable and not creditable against research and
development services to be rendered. Initial license fees are thus
deferred and recognized over the period of the license term or the
period of the associated research and development agreement. In
circumstances where initial license fees are not for a defined
period, revenues are deferred and recognized over the period to
the expiration of the relevant patent to which the license
relates.
53
Where licensing arrangements are accompanied by an equity
subscription agreement, the series of transactions are accounted
for as a multiple elements arrangement. Accordingly, the aggregate
consideration is allocated to the two elements of the arrangement
as described below.
The fair value of the equity subscription is calculated as being
the aggregate number of shares issued at the average of the
opening and closing share prices on the date of issue.
During the term of certain research and development agreements,
the Company receives non-refundable milestones as certain
technical targets are achieved. Revenues are recognized on
achievement of milestones.
The Company also receives non-refundable clinical milestones when
certain targets are achieved during the clinical phases of
development, such as the submission of clinical data to a
regulatory authority. These clinical milestones are recognized
when received. If milestone payments are creditable against future
royalty payments, the milestones are deferred and released over
the period in which the royalties are anticipated to be received.
(iii) Royalty income
Royalty income relating to licensed technology is recognized when
receivable.
Where applicable, all revenues are stated net of value added tax and
similar taxes, trade discounts and intercompany transactions.
No revenue is recognized for consideration, the value or receipt of which
is dependent on future events, future performance, or refund obligations.
The SEC issued Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements," which reemphasizes existing guidance
related to revenue recognition, including criteria specified in the Financial
Accounting Standard's Board (FASB) conceptual framework on timing of revenue
recognition, and presentation and disclosure of revenue in the financial
statements. SAB No. 101 was effective for the fourth quarter of 2000. The
implementation of SAB No. 101 did not have a material impact on the Company's
results of operations, cash flows or financial position.
d) Research and Development
Research and development expenditures include funded and unfunded
expenditures and are charged to operations in the period in which the expense is
incurred. Milestones payable in respect of research and development work are
charged to the income statement on achievement of those milestones.
e) Leased Assets
The costs of operating leases are charged to operations on a straight line
basis over the lease term, even if rental payments are not made on such a basis.
Assets acquired under capital leases are included in the balance sheet as
tangible fixed assets and are depreciated over the shorter of the period of
lease or their useful lives. The capital elements of future lease payments are
recorded as liabilities, while the interest elements are charged to the income
statement over the period of the leases to produce a level yield on the balance
of the capital lease obligation.
54
f) Pensions
The Group contributes to personal defined contribution pension plans of
employees. Contributions are charged to the income statement as they become
payable. These contributions are detailed in Note 22. Details of the
supplemental Executive Retirement Plan operated by the Group are given in Note
22.
g) Finance Costs of Debt
Finance costs of debt are recorded as a deferred asset and then amortized
to the income statement over the term of the debt using the level yield method.
Deferred financing costs relating to debt terminated early are written off to
the income statement in that period.
h) Income Taxes
The Company provides for income taxes in accordance with SFAS No.109,
"Accounting for Income Taxes". Deferred tax assets and liabilities are provided
for differences between the financial statement and tax bases of assets and
liabilities that will result in future taxable or deductible amounts. The
deferred tax assets and liabilities are measured using the enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Income tax expense is computed as the tax payable or refundable
for the period plus or minus the change during the period in deferred tax assets
and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
i) Advertising Expense
The Company expenses the cost of advertising as incurred. Advertising costs
amounted to $6,810,000, $6,646,000 and $6,715,000 for the years ended December
31, 2000, 1999 and 1998 respectively.
j) Foreign Currency
Monetary assets and liabilities in foreign currencies are translated into
U.S. dollars at the rate of exchange ruling at the balance sheet date.
Transactions in foreign currencies are translated into U.S. dollars at the rate
of exchange ruling at the date of the transaction. Transaction gains and losses
are recognized in arriving at operating income.
The results of overseas operations are translated at the average rates of
exchange during the period and their balance sheets at the rates ruling at the
balance sheet date. The cumulative effect of exchange rate movements is included
in a separate component of other comprehensive income.
The consolidated financial statements are prepared from records maintained
in the country in which the subsidiary is located and are translated into U.S.
dollars according to the above policy.
Foreign currency exchange transaction gains and losses on an after-tax
basis included in consolidated net income in the years ended December 31, 2000,
1999, and 1998, pursuant to Statement of Financial Accounting Standards (SFAS)
No. 52, Foreign Currency Translation, amounted to $67,000 loss, $880,000 loss
and $457,000 gain, respectively.
k) Employee Stock Plans
The Company accounts for stock options in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations.
55
l) Cash Equivalents and Marketable Securities
Cash and cash equivalents include cash in banks and bank short-term
investments with original maturities of less than ninety days. Marketable
securities classified as available for sale consist primarily of debt
instruments with maturities of more than three months. They are marked to market
at each balance sheet date, with gains and losses recorded in a separate
component of other comprehensive income. Other than temporary impairments in
value are recorded through the income statement.
m) Inventories
Inventories, consisting primarily of finished goods, are stated at the
lower of cost and net realizable value. Cost incurred in bringing each product
to its present location and condition is based on purchase costs calculated on a
first-in, first-out basis, including transport. Net realizable value is based on
estimated normal selling price less further costs expected to be incurred to
completion and disposal. Provision is made for obsolete, slow moving or
defective items where appropriate.
n) Investments
Investments which are accounted for under the cost method are stated at
cost, less provisions for other than temporary impairment in value. Impairment
is assessed by reference to the fair value of the securities as determined using
established financial methodologies. Investments in equities with readily
determinable market values are marked to market. The fair value of investments
in private entities and non-traded securities of public entities are measured by
valuation methodologies including discounted cash flows.
o) Intangible Assets
Intangible assets comprise goodwill and intellectual property rights.
Goodwill arising on the acquisition of subsidiary undertakings and
businesses, representing any excess of the fair value of the consideration given
over the fair value of the identifiable assets and liabilities acquired, is
capitalized and written off on a straight line basis over its useful economic
life.
Goodwill recognized in each significant business combination is being
amortized over a period of five to 30 years on a straight line basis depending
on the nature of the goodwill, and is evaluated periodically for realizability
based on expectations of undiscounted cash flows and earnings from operations
for each subsidiary having a material goodwill balance.
The following factors are considered in estimating the useful lives. Where
an intangible asset is a composite of a number of factors, the period of
amortization is determined from considering these factors together:
o regulatory and legal provisions, including the regulatory approval and
review process, patent issues and actions by government agencies
o the effects of obsolescence, changes in demand, competing products and
other economic factors, including the development of competing drugs
that are more effective clinically or economically
o actions of competitors, suppliers, regulatory agencies or others that
may eliminate current competitive advantages
Impairments to goodwill are recognized if expected undiscounted cash flows
are not sufficient to recover the goodwill. If a material impairment is
identified, goodwill is written down to its fair value. Fair value is determined
based on the present value of expected net cash flows to be generated by the
business, discounted using a rate commensurate with the risks involved.
56
Intellectual property, including trademarks for products with an immediate
defined revenue stream and acquired for valuable consideration, is recorded at
cost and amortized in equal annual installments over the estimated useful life
of the related product which range from 5 to 40 years. Intellectual property
with no defined revenue stream where the related product has not yet completed
the necessary approval process is written off on acquisition. Amounts recorded
as intangible assets are reviewed for impairment on a periodic basis using
expected undiscounted cash flows.
Continuing milestone payments on intellectual property with no defined
revenue stream are charged to operations. Royalty payments due on sales of
products are charged to operations when a liability has been incurred.
p) Property, Plant and Equipment
Property, plant and equipment is shown at cost less accumulated
depreciation and any provision for impairment. Depreciation is provided on a
straight line basis at rates calculated to write off the cost less estimated
residual value of each asset over its estimated useful life as follows:
Land and buildings 50 years
Office furniture, fittings and equipment 4 to 5 years
Warehouse, laboratory and manufacturing equipment 4 to 5 years
Expenditures for maintenance and repairs are charged to expense as
incurred; costs of major renewals and improvements are capitalized. At the time
property, plant and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are eliminated from the asset and accumulated
depreciation accounts and the profit or loss on such disposition is reflected in
income.
q) Concentration of Credit Risk
Revenues are mainly derived from agreements with major pharmaceutical
companies and relationships with drug distributors. Significant customers are
disclosed in Note 20(d). Such clients have significant cash resources and
therefore any credit risk associated with these transactions is considered
minimal.
Excess cash is invested in bank and building society term deposits and
commercial paper from a variety of companies with strong credit ratings. These
investments typically bear minimal risk.
r) Related Parties
Transactions with related parties are conducted on the same basis as they
would have been with unrelated parties.
s) New Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement requires that all
derivatives be recorded in the balance sheet as either an asset or liability
measured at its fair value and that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133". This Statement defers for one year the effective date of
SFAS 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000.
In June 2000, the FASB issued Statement No. 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of FASB
Statement No. 133". SFAS 138 amends SFAS 133 to (a) exclude from the scope of
SFAS No. 133 non financial assets that will be delivered in quantities expected
to be used or sold by the company over a reasonable period in the normal course
of business and
57
for which physical delivery is probable, (b) permit hedging of a benchmark
interest rate, (c) allow hedging of foreign-currency-denominated assets and
liabilities and (d) allow for limited hedging of net foreign currency exposures.
The Company has reviewed it's existing contracts and has put procedures in
place to monitor and evaluate transactions in accordance with FASB Statement No.
133. The Company does not believe the adoption of this statement will have a
material impact on the results of operations or it's financial position going
forward. There is no impact on the financial position as at December 31, 2000.
(2) Business Combinations and Reorganizations
Year ended December 31, 2000
No significant acquisitions or dispositions of businesses took place during
the year ended December 31, 2000.
On December 11, 2000 the Company announced that it has entered into an
agreement to merge with BioChem Pharma Inc. ("BioChem"), an international
specialty pharmaceutical company based in Laval, Canada. It is intended that the
merger will be achieved through an exchange of shares. The merger, which is
expected to close in the second quarter of 2001, is subject to the approval of
Shire and BioChem shareholders, the absence of any material change affecting
BioChem, the accounting of the merger as a pooling of interests, the obtaining
of regulatory approvals, and other customary terms and conditions.
Year ended December 31, 1999
(a) Acquisition of Laboratoires Murat S.A., Fuisz Pharma GmbH & Co KG and
Istoria Farmaceutici S.p.A.
On October 22 1999, the Company completed the acquisition of all the assets
and liabilities of Laboratoires Murat S.A., Fuisz Pharma GmbH and the Cebutid
trademark for $33 million, including the costs of acquisition. The purchase
price consisted of $29.7 million in cash and the assumption of a $3.3 million
liability due to Knoll AG.
On November 17 1999, the Company completed the acquisition of all the
assets and liabilities of Istoria Farmaceutici S.p.A. for $6.5 million,
including the costs of acquisition. The purchase consideration was $6.5 million
in cash. The above transactions provided Shire with marketing and distribution
operations in France, Germany and Italy respectively. These acquisitions were
accounted for using purchase accounting. Total goodwill of $22.4 million was
recorded and is being amortized on a straight line basis over a period of 20
years, the expected economic life of the underlying assets acquired. The results
of operations of the acquired subsidiaries have been included in the
consolidated results of the Company since their respective dates of acquisition.
The purchase price of $3.3 million for Laboratoires Murat S.A. was
allocated as follows:
$'000
-------
Property, plant and equipment 19
Intangible assets 1,073
Current assets 1,614
Accounts payable (1,292)
-------
Net assets acquired 1,414
Goodwill 1,886
-------
Purchase consideration 3,300
-------
58
$7.5 million was in respect of the Cebutid trademark.
The purchase price of $22.2 million for Fuisz Pharma GmbH was allocated as
follows:
$'000
-------
Property, plant and equipment 23
Intangible assets 3,331
Current assets 1,891
Accounts payable (1,108)
-------
Net assets acquired 4,137
Goodwill 18,063
-------
Purchase consideration 22,200
-------
The purchase price of $6.5 million for Istoria Farmaceutici S.p.A. was
allocated as follows:
$'000
-------
Property, plant and equipment 166
Intangible assets 3,268
Current assets 1,515
Accounts payable (897)
-------
Net assets acquired 4,052
Goodwill 2,448
-------
Purchase consideration 6,500
-------
(b) Merger with Roberts Pharmaceutical Corporation
On December 23, 1999, the Company acquired 100% of the outstanding stock of
Roberts Pharmaceutical Corporation ("Roberts") in exchange for 100,767,482
ordinary shares.
This transaction was accounted for by the pooling of interests method.
Following consummation of the transaction, the Company decided to restructure
the enlarged business and accordingly recorded approximately $97.1 million in
non-recurring asset impairment and restructuring charges. The accompanying
consolidated financial statements have been retroactively restated to reflect
the combined operations of Roberts and Shire as if the merger was consummated on
January 1, 1998.
(c) Dispositions
On January 13, 1999 the Company disposed of its Indianapolis manufacturing
plant for a net consideration after expenses of $1.5 million including a loan
note of $0.5 million. A net gain of $0.8 million was recorded in the
consolidated statement of income.
During November 1999, the Company sold the product Tigan for $6.4 million.
The Company recorded a loss on disposal of $5.8 million.
59
(d) Pro forma information
The pro forma effect in 1999 and 1998 of the significant acquisitions if
acquired on January 1, 1999 and January 1, 1998 respectively would have resulted
in revenues, income before extraordinary items, net income and per share data as
follows:
1999 1998
$'000 $'000
------------ ------------
Revenues 417,948 330,346
(Loss)/income before extraordinary items (95,463) 19,039
Net (loss)/income (95,463) 19,039
Net (loss)/income per share - basic $(0.39) $0.08
Net (loss)/income per share - diluted $(0.39) $0.08
Year ended December 31, 1998
There were no significant acquisitions or dispositions of businesses during the
year ended December 31, 1998.
(3) Cash and Cash Equivalents
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Cash at bank and in hand 46,598 54,082
------------ ------------
(4) Marketable Securities and Other Current Asset Investments
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Marketable securities 46,000 44,003
Commercial paper 28,000 39,200
Institutional cash fund 65,745 1,141
------------ ------------
139,745 84,344
------------ ------------
There are no restrictions on the sale of marketable securities and no
amounts have been pledged as collateral.
There have been no significant changes in market value subsequent to
December 31, 2000.
The Company recorded realized losses on sales of marketable securities
during the years ended December 31, 2000, 1999 and 1998 of $nil, $227,000 and
$30,000.
60
Unrealized holding gains and losses on available for sale marketable
securities, as disclosed in the Statement of Comprehensive Income, amounted to
$nil, $411,000 loss and $96,000 gain at December 31, 2000, 1999 and 1998
respectively.
Maturity dates of marketable securities held at December 31, 2000 ranged
from one to 3 months (December 31, 1999: three to 6 months).
(5) Accounts Receivable
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Trade receivables 92,204 55,953
Notes receivable 334 678
Other receivables 1,292 2,387
------------ ------------
93,830 59,018
------------ ------------
Trade receivables included above are stated net of a provision for doubtful
debts of $819,000 (December 31, 1999: $565,000). At December 31, 2000 other
receivables were in respect of accrued royalty income. At December 31, 1999
other receivables included $1,144,000 of accrued royalty income. Notes
receivable are in respect of the divestment of certain products.
(6) Inventory
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Finished goods 23,066 26,573
Work-in-process 11,776 6,389
Raw materials 12,267 6,576
------------ ------------
47,109 39,538
------------ ------------
(7) Prepaid Expenses and Other Current Assets
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Prepaid expenses 3,807 6,621
Deferred financing costs 500 1,098
Tooling costs 1,000 -
Other current assets 4,429 1,293
------------ ------------
9,736 9,012
------------ ------------
61
The deferred financing costs are in respect of the $125 million long-term
loan (see Note 15 Long-term Debt) and are being amortized over the five-year
term of the loan.
Tooling costs are not currently being amortized as the manufacturing
equipment to which they relate is not yet in use. It is anticipated that
production will commence during 2001, and based on expected production volumes,
approximately $1,000,000 of the costs are classified as current at December 31,
2000. The Company does not own the tools but has a non-cancellable right to use
the tools during the contract period.
Included within other current assets at December 31, 2000 is valued added
tax recoverable of $1,899,000.
(8) Investments
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
RiboGene Inc. 2,604 2,604
Cortex Pharmaceuticals Inc. 836 -
D-Pharm Ltd 2,000 -
CeNeS Pharmaceuticals plc 699 -
------------ ------------
6,139 2,604
------------ ------------
The Company has an investment in the convertible preferred stock of
RiboGene, Inc., a drug discovery company targeting infectious diseases. The
shares have no voting rights. One-third of the preferred stock is convertible at
the option of the Company to common stock of RiboGene at each of the first three
anniversary dates of the investment. The investment is classified as held to
maturity.
In April 2000, the Company entered into an option agreement with Cortex
Pharmaceuticals Inc. under which Shire will evaluate the use of Cortex's
Ampakine CX516 for the treatment of ADHD. Under the terms of the agreement, the
Company will undertake a double-blind, placebo-controlled evaluation of CX516 in
ADHD patients. If the study proves effective, Shire has the right to convert its
option into an exclusive worldwide license for the Ampakines for ADHD under a
development and licensing agreement. In exchange for the option, Cortex received
approximately $0.8 million and issued common stock to Shire.
In March 2000, the Company entered into a license agreement with D-Pharm
Ltd, under which Shire has undertaken to develop and market DP-VPA for the
treatment of epilepsy. DP-VPA, which Shire has designated SPD 421, is a unique
new chemical analogue of valproic acid which has successfully completed Phase I
studies. The terms of the agreement included an upfront fee payable to D-Pharm
comprising cash and an equity investment, as well as clinical and commercial
milestone payments. The cash payment was expensed as incurred in accordance with
the Company's accounting policies. The equity investment has been recorded at
cost.
In December 2000, Shire signed a research, development and licensing
agreement with CeNeS Pharmaceuticals plc for the development of CeNeS' dopamine
D1 agonist program for the treatment of Parkinson's disease. Shire will make
milestone payments and pay CeNeS royalties on products developed under the
agreement. Shire has made an equity investment in CeNeS of approximately $0.7
million and will fund all development work.
62
The Company recorded an unrealized holding loss of $48,000 in respect of
non-current investments marked to market at December 31, 2000. This is shown in
the Statement of Comprehensive income. There were no unrealized holding gains or
losses at December 31, 1999 in respect of non-current investments.
(9) Property, Plant and Equipment
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Land and buildings 34,597 25,498
Office furniture, fittings and equipment 12,575 14,527
Warehouse, laboratory and manufacturing
equipment 13,272 10,595
------------ ------------
60,444 50,620
Less: Accumulated depreciation (10,759) (13,136)
------------ ------------
49,685 37,484
------------ ------------
Depreciation expense for the years ended December 31, 2000, 1999 and 1998
was $3,814,000 $4,243,000 and $3,281,000 respectively.
Included within land and buildings at December 31, 2000 is a new office
facility purchased for $17.4 million, which will become the Group's new
worldwide headquarters effective from March 2001. The building, purchased in
October 2000, has not been depreciated as it will not become operational until
March 2001.
Included within land and buildings at December 31, 1999 is approximately
$12 million relating to the Company's Eatontown, New Jersey office facility that
was classified as available for sale. The Company completed the sale of the
Eatontown facility during the year ended December 31, 2000.
(10) Intangible Assets
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Intellectual property rights acquired 433,049 394,640
Goodwill arising on businesses acquired 222,865 238,897
------------ ------------
655,914 633,537
Less: Accumulated amortization (99,901) (75,603)
------------ ------------
556,013 557,934
------------ ------------
Included in intellectual property above is $15.9 million for the purchase
from Salix Pharmaceuticals Ltd ("Salix") of the exclusive rights to balsalazide,
a treatment for ulcerative colitis. The exclusive rights apply to certain
European and Nordic countries. Under the terms of the agreement, the Company has
undertaken to pay Salix up to a total of $24.0 million, including approximately
$12.0 million in up-front fees and up to $12.0 million upon the achievement of
certain milestones.
63
In November 2000, the Company entered into an agreement with Nycomed
Austria GmbH ("Nycomed") under which Shire extended the term of its exclusive
distributor rights to the product ProAmatine in North America and the U.K. and
Republic of Ireland, for approximately $21.1 million. Shire had previously
marketed the product and paid Nycomed royalties on sales of ProAmatine. Under
the terms of the agreement, Nycomed repaid all royalties received from Shire in
respect of the year ended December 31, 2000 and has waived all rights to future
royalties. The net cost to Shire of approximately $17.5 million is included as
an addition to intangible assets in the year ended December 31, 2000.
Other significant additions to intellectual property during the year ended
December 31, 2000 included a gastrointestinal product purchased for marketing
and distribution in Spain for approximately $4.8 million.
Amortization expense for the years ended December 31, 2000, 1999 and 1998
was $26,661,000 $24,355,000 and $21,968,000 respectively.
(11) Other Non-current Assets
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Notes receivable - 422
Deferred financing costs 2,341 4,393
Tooling costs 3,218 -
SERP investment 16,115 -
Other assets 934 1,821
------------ ------------
22,608 6,636
------------ ------------
The deferred financing costs and tooling costs represent the non-current
portion of the total assets respectively. For further details see Note 7
"Prepaid Expenses and Other Current Assets" above.
For further details of the SERP investment, see Note 22 "Retirement
Benefits". The amount shown above is the gross asset represented by non-current
marketable securities. A liability of approximately $13.6 million is included
within Note 16 "Other Non-current Liabilities".
(12) Current Portion of Long-term Debt
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Current portion of notes payable 1,448 9,573
Current portion of capital leases - 35
------------ ------------
1,448 9,608
------------ ------------
64
(13) Accounts and Notes Payable
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Trade accounts payable 39,755 31,540
Accrued expenses 59,682 79,520
Notes payable - 3,449
------------ ------------
99,437 114,509
----------- -----------
The notes payable at December 31, 1999 were in respect of the divestment of
certain products and were repaid in full during the year ended December 31,
2000.The weighted average interest rate for these notes payable at December 31,
1999 was 6%.
(14) Other Current Liabilities
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Income taxes payable 4,263 6,727
Payable for termination of license
agreement 747 806
Other accrued liabilities 5,518 41,170
------------ ------------
10,528 48,703
------------ ------------
Included within other accrued liabilities at December 31, 2000 is
$1,024,000 for value added taxes, $818,000 for social security liabilities, and
$930,000 payable to Knoll AG related to the acquisition of the Fuisz
subsidiaries (see Note 2 "Business Combinations and Reorganizations"). At
December 31, 1999 other accrued liabilities primarily related to restructuring
costs incurred as a result of the merger with Roberts Pharmaceutical
Corporation.
(15) Long-term Debt
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Notes payable 127,812 135,887
Less: current installments (1,448) (9,573)
------------ ------------
126,364 126,314
------------ ------------
Capital leases payable - 35
Less: current installments - (35)
------------ ------------
65
- -
------------ ------------
Total, less current liabilities 126,364 126,314
------------ ------------
Principal payments in each of the next five years and thereafter on
long-term debt outstanding at December 31, 2000 amount to:
December 31,
2000
$'000
------------
2001 1,448
2002 1,364
2003 -
2004 125,000
2005 -
Thereafter -
------------
127,812
------------
$125 million five year term loan
The Company entered into a $125 million five year term loan with Credit
Suisse First Boston ("CSFB"), previously known as DLJ Capital Funding, Inc. on
November 19, 1999. This loan replaced an existing $125 million loan facility in
the name of Roberts Pharmaceutical Corporation that had been taken out to
finance the acquisition of Pentasa in 1998. The new loan is in the name of the
parent company, Shire Pharmaceuticals Group plc. The applicable interest rate
ranges between 0.5 per cent and 1.5 per cent over the higher of the prime rate
of CFSB or the Federal Funds Rate plus 0.5 per cent or between 1.5 per cent and
2.5 per cent over the London Interbank Overnight Rate (as adjusted in accordance
with the loan agreement), in each case depending on Company's credit rating.
All obligations under the facility are jointly and severally guaranteed by
the Company and by its subsidiaries and are initially secured by all material
property owned by the Company and its subsidiaries and the capital stock of the
subsidiaries. If the Company's credit rating reaches specified levels, the
facility will not be secured. The facility contains covenants and maintenance
tests that require the Company to maintain a minimum net worth, a specified
leverage ratio and a specified coverage ratio. At December 31, 2000 the Company
satisfied the aforementioned covenants and maintenance tests.
$11.8 million Unsecured Convertible Zero Coupon Loan Note
The Company financed the purchase of intellectual property relating to the
manufacture of Adderall from Arenol Corporation by a total of $11.8 million in
loan notes. On March 5, 1999 the Company issued a $5.8 million principal amount
Unsecured Convertible Zero Coupon Loan note due July 30, 2001 (the "First Loan
Note") and a $6.0 million principal amount Unsecured Convertible Zero Coupon
Loan Note due July 30, 2004 (the "Second Loan Note"). Both loan notes are in the
name of the parent company, Shire Pharmaceuticals Group plc. The agreement
provides for the cancellation of certain specified amounts of the aggregate
principal amount of the First Loan Note and of such amounts of the Second Loan
Note on certain dates to the extent of certain indemnified losses or, to the
extent that such amounts of the First Loan Note or the Second Loan Note
(together "the Loan Notes") are not so cancelled, for their conversion into
Ordinary Shares. The number of Ordinary Shares is calculated by dividing the
amount not cancelled by the lower of
66
(pound)3.565 (approximately $5.75) and the midweek closing price of the Ordinary
Shares on the London Stock Exchange on the relevant date. Translation from
pounds sterling to U.S. dollars is made using the exchange rate on the relevant
date. The Company issued 533,279, 560,076 and 541,478 Ordinary Shares on March
13, 2000, August 3, 2000 and November 6, 2000, respectively to Arenol
Corporation (or its nominee broker) in consideration of the conversion of part
of each of the Loan Notes in the Company.
(16) Other Non-current Liabilities
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Payable for termination of license
agreement 373 1,209
Other accrued liabilities 13,823 136
------------ ------------
14,196 1,345
------------ ------------
Other accrued liabilities at December 31, 2000 include $13,609,000 in
relation to the SERP (see Note 22 "Retirement Benefits".
(17) Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each material class of financial instrument:
o Cash and cash equivalents - carrying amount approximates fair value
due to the short-term nature of these instruments.
o Marketable securities and other current asset investments - the fair
value of marketable securities is estimated based on quotes obtained
from brokers.
o Investments - non current investments with readily determinable market
values are marked to market. The fair value of investments in private
entities and non-traded securities are measured by valuation
methodologies including discounted cash flows.
o Accounts receivable - carrying amount approximates fair value due to
the short-term nature of these instruments.
o Accounts and notes payable - carrying amount approximates fair value
due to the short-term nature of these instruments.
o Long term debt - the fair value of long term debt is estimated based
on the discounted future cash flows using currently available interest
rates.
67
The carrying amounts and corresponding fair values of financial instruments
at December 31, 2000 and 1999 were as follows:
December 31, 2000
Carrying
Amount Fair Value
$'000 $'000
------------ ------------
Financial assets:
Cash and cash equivalents 46,598 46,598
Marketable securities and other current
asset investments 139,745 139,745
Investments 6,139 6,139
Financial liabilities:
Accounts and notes payable 99,437 99,437
Long-term debt 127,812 127,812
------------ ------------
December 31, 1999
Carrying
Amount Fair Value
$'000 $'000
------------ ------------
Financial assets:
Cash and cash equivalents 54,082 54,082
Marketable securities and other
current asset investments 84,344 83,933
Investments 2,604 2,604
Financial liabilities:
Accounts and notes payable 114,509 114,487
Long-term debt 135,922 135,922
------------ ------------
The carrying amounts in the table are included in the consolidated balance
sheet under the indicated captions.
68
(18) Leases and Other Commitments
(a) Leases
The Company leases facilities, motor vehicles and certain office equipment
under operating leases. The Company's commitments under the non-cancelable
portion of all operating leases for the next five years and thereafter as of
December 31, 2000 are as follows:
December 31,
2000
$'000
------------
2001 4,027
2002 3,437
2003 2,267
2004 1,154
2005 689
Thereafter 2,299
------------
13,873
------------
Lease and rental expense included in selling, general and administrative
expenses in the accompanying statements of operations amounts to approximately
$4,250,000 $3,155,000 and $1,555,000 for the fiscal years ended December 31,
2000, 1999 and 1998 respectively.
(b) Contingent liabilities
Until April 1998, Shire Richwood Inc. ("SRI") distributed products
containing phentermine, a prescription drug approved in the U.S. as a single
agent for short term use in obesity. Contrary to the approved labeling of these
products, physicians in the U.S. co-prescribed phentermine with fenfluramine or
dexfenfluramine for management of obesity. This combination was popularly known
as the "fen/phen" diet. In mid 1997, following concerns raised about cardiac
valvular side effects alleged to be associated with this diet regime, the
fenfluramine and dexfenfluramine elements of the "fen/phen" diet were withdrawn
from the U.S. market. Although SRI has ceased to distribute phentermine, the
drug remains both approved and available in the U.S. SRI and a number of other
pharmaceutical companies are being sued for damages for personal injury and
medical monitoring arising from phentermine used either alone or in combination.
As of December 31, 2000, SRI was named as a defendant in approximately 3,729
lawsuits and had been dismissed from approximately 2,178 of these cases. There
were approximately 1,120 additional cases pending dismissal as of December 31,
2000. In only 171 cases has it been alleged in the complaint or subsequent
discovery that the plaintiff had used SRI's particular product and SRI has been
dismissed from 105 of these cases as well. Although there have been reports of
substantial jury awards and settlements in respect of fenfluramine and/or
dexfenfluramine, to date Shire is not aware of any jury awards made against, or
any settlements made by, any phentermine defendant. Shire denies liability on a
number of grounds including lack of scientific evidence that phentermine,
properly prescribed, causes the alleged side effects and that SRI did not
promote phentermine for long term combined use as the "fen/phen" diet.
Accordingly, Shire intends to defend vigorously any and all claims made against
the Group in respect of phentermine and believes that a liability is neither
probable nor quantifiable at this stage of litigation.
Legal expenses have been paid by Eon Labs Manufacturing Inc. ("Eon"), the
suppliers to SRI or Eon's insurance carriers but such insurance is now
exhausted. Eon has agreed to defend and indemnify SRI in this litigation
pursuant to an agreement dated November 30, 2000 between Eon and SRI.
69
On August 31, 2000 Shire entered into an agreement (the "Termination
Agreement") with the former shareholders of SRI, pursuant to which the ordinary
shares placed in escrow at the time of the purchase of SRI by Shire were
released and the escrow agreement and the escrow fund were terminated. The
escrow agreement with the SRI shareholders was initially established by Shire in
1997 in anticipation of possible phentermine related claims against the Company.
Under the terms of the termination Agreement, monies in the approximate amount
of $7 million were received by Shire and the escrow fund was terminated. The
remaining shares were distributed to the former SRI shareholders.
At the present stage of litigation, Shire is unable to estimate the level
of future legal costs after taking into account any available product liability
insurance and enforceable indemnities. To the extent that any legal costs are
not covered by insurance or available indemnities, these will be expensed as
incurred.
(19) Net Income/(Loss) per Share
Basic net income/(loss) per share is based upon the income available to
common stockholders divided by the weighted-average number of common shares
outstanding during the period. Diluted net income/(loss) per share is based upon
income available to common stockholders divided by the weighted-average number
of common shares outstanding during the period and adjusted for the effect of
all dilutive potential common shares that were outstanding during the period.
The following table sets forth the computation for basic and diluted net
income/(loss) per share:
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
----------------- ----------------- -----------------
Numerator for basic and diluted net income/(loss) per
share 76,171 (94,998) 20,572
----------------- ----------------- -----------------
No. of shares No. of shares No. of shares
Weighted average number of shares 252,497,255 244,698,721 234,044,732
Basic
Effect of dilutive stock options 7,847,677 - 8,761,678
----------------- ----------------- -----------------
Diluted 260,344,932 244,698,721 242,806,410
----------------- ----------------- -----------------
Basic net income/(loss) per share $0.30 $(0.39) $0.09
Diluted net income/(loss) per share $0.29 $(0.39) $0.08
----------------- ----------------- -----------------
The calculation of weighted average number of shares for the year ended
December 31, 2000 does not include convertible debt because, after eliminating
interest charged in the income statement from the numerator, the inclusion would
be anti-dilutive.
The calculation of weighted average number of shares for the year ended
December 31, 1999 does not include potentially dilutive stock options and
convertible debt because their inclusion would be anti-dilutive in a loss-making
year.
70
(20) Analysis of Revenue, Operating Income/(Loss), Assets and Reportable
Segments
The Company has disclosed segment information for the individual operating
areas of the business, based on the way in which the business is managed and
controlled. Shire's principal reporting segments are geographic, each being
managed and monitored separately and serving different markets. The Company
evaluates performance based on operating income or loss before interest and
income taxes. All inter-company items are eliminated. The accounting policies of
each reportable segment are the same as those of the Group.
Year ended December 31, 2000 Rest of
U.S. Europe World Total
$'000 $'000 $'000 $'000
--------- -------- --------- ---------
Product sales 414,624 60,798 22,670 498,092
Licensing and development 1,326 12,821 - 14,147
Royalties 266 3,816 25 4,107
Other revenues 20 - 1,242 1,262
--------- -------- --------- ---------
Total revenues 416,236 77,435 23,937 517,608
Cost of revenues 53,393 23,601 11,164 88,158
Research and development 69,252 36,799 80 106,131
Selling, general and administrative 120,713 72,660 7,682 201,055
--------- -------- --------- ---------
Total operating expenses 243,358 133,060 18,926 395,344
--------- -------- --------- ---------
Operating income/(loss) 172,878 (55,625) 5,011 122,264
--------- -------- --------- ---------
Total assets 567,113 406,780 30,839 1,004,732
Long-lived assets 13,444 21,431 14,810 49,685
--------- -------- --------- ---------
Capital expenditure on long-lived assets
7,931 20,070 358 28,359
--------- -------- --------- ---------
71
Year ended December 31, 1999 Rest of
U.S. Europe World Total
$'000 $'000 $'000 $'000
--------- -------- --------- ---------
Product sales 313,582 55,194 16,427 385,203
Licensing and development 1,097 9,675 - 10,772
Royalties - 3,562 - 3,562
Other revenues 517 - 1,478 1,995
--------- -------- --------- ---------
Total revenues 315,196 68,431 17,905 401,532
Cost of revenues 62,375 20,958 10,142 93,475
Research and development 50,544 26,904 55 77,503
Selling, general and administrative 108,682 55,986 6,718 171,386
Costs of restructuring 93,603 3,529 - 97,132
Merger transaction expenses 9,312 22,967 - 32,279
Loss on sale of product rights 5,825 - - 5,825
--------- -------- --------- ---------
Total operating expenses 330,341 130,344 16,915 477,600
--------- -------- --------- ---------
Operating (loss)/income (15,145) (61,913) 990 (76,068)
--------- -------- --------- ---------
Total assets 546,849 313,113 27,801 887,763
Long-lived assets 19,003 2,656 15,825 37,484
--------- -------- --------- ---------
Capital expenditure on long-lived assets
2,621 768 1,397 4,786
--------- -------- --------- ---------
Year ended December 31, 1998
Product sales 226,988 50,261 14,536 291,785
Licensing and development 622 11,199 - 11,821
Royalties - 3,697 - 3,697
Other revenues 306 - 1,375 1,681
--------- -------- --------- ---------
Total revenues 227,916 65,157 15,911 308,984
Cost of revenues 67,889 19,378 7,746 95,013
Research and development 27,556 31,647 50 59,253
Selling, general and administrative 80,854 45,208 5,640 131,702
Profit on sale of product rights (220) - - (220)
--------- -------- --------- ---------
Total operating expenses 176,079 96,233 13,436 285,748
--------- -------- --------- ---------
Operating income/(loss) 51,837 (31,076) 2,475 23,236
--------- -------- --------- ---------
Total assets 542,799 307,309 23,497 873,605
Long-lived assets 25,653 2,764 14,265 42,682
--------- -------- --------- ---------
Capital expenditure on long-lived assets
4,902 1,201 8,665 14,768
--------- -------- --------- ---------
72
(d) Material customers
In the periods set out below, certain customers accounted for greater than
10% of total revenues:
Years ended December 31, 2000 1999 1998
------------ ------------ ------------
Customer A 132,913 100,267 53,599
Customer B 80,293 54,498 31,387
Customer C 58,776 40,045 35,314
(21) Other Charges
Year ended December 31, 1999
As a result of the acquisition of Roberts Pharmaceutical Corporation on
December 23, 1999, which was accounted for as a pooling of interests, the
Company recorded charges totaling $135.2 million pre-tax for asset impairments
($48.5 million), merger-related transaction expenses ($32.3 million),
restructuring costs ($43.6 million), loss on product dispositions ($5.8 million)
and other charges ($5.0 million). These charges are disclosed separately within
operating expenses in the consolidated statements of income.
The Company recorded an impairment charge of $34.2 million to adjust
intangible asset values, primarily product rights, to their estimated fair
value. These charges are consistent with the Company's accounting policy to
review periodically the carrying value of the intangibles and evaluate whether
there has been any impairment in the value of those intangibles as compared with
estimated undiscounted future cash flows of the products. Other asset
impairments consisted of the write off of inventory held for research and
development work and duplicate equipment ($ 3.2 million), adjustments to the
carrying value of the RiboGene investment to market value at December 31, 1999
($ 7.6 million), and write down of receivables to their estimated realizable
value ($ 3.5 million).
The components of the restructuring charge were as follows:
$m
Employee termination costs 37.9
Property 5.7
-----------
43.6
-----------
In December 1999, the decision was made to close the office facility in
Eatontown, New Jersey and consolidate the sales and marketing operations into
the existing facility in Florence, Kentucky and to transfer the research &
development activities to Shire's facility in Rockville, Washington. Similarly,
Roberts' sales and marketing operation in the U.K. was combined with Shire's
established operation in Andover, Hampshire. The property at Eatontown was
written down to its estimated fair value.
As a result of the restructuring and elimination of duplicate facilities,
the Company identified a number of sales and marketing, research and development
and administrative positions to be terminated. These employees were notified of
their termination prior to December 31, 1999. The employee termination costs
consisted of payments for severance, medical and other benefits, outplacement
counseling, acceleration of pension benefits and excise taxes. The Company
completed the restructuring program
73
during the fourth quarter of 2000, and the restructuring reserve of $43.6
million was fully utilized by December 31, 2000. Merger costs savings for the
year ended December 31, 2000 exceeded the initial target of $20 million.
Year ended December 31, 1998
During the year ended December 31, 1998 a gain of $220,000 was credited to the
income statement in respect of the disposition of certain products.
(22) Retirement Benefits
(a) Personal defined contribution pension plans
The Company makes contributions to defined contribution retirement plans
that together cover substantially all employees within the Group. For the
defined contribution retirement plans, the level of company contribution is
fixed at a set percentage of employee's pay.
Company contributions to personal defined contribution pension plans
totaled $2,580,000, $1,558,000 and $1,124,000 for the years ended December 31,
2000, 1999 and 1998 respectively, and were charged to operations as they became
payable.
(b) Defined benefit pension plan
Roberts Pharmaceutical Corporation, a company with whom Shire merged in
December 1999, operated a defined Supplemental Executive Retirement Plan (SERP)
for certain U.S. employees, which was established in 1998. This plan was
available to former employees of Roberts who met certain age and service
requirements.
As part of the restructuring of the Group following the merger, the SERP
was closed to new members and contributions have ceased being paid into the plan
for existing members. As part of this arrangement, the Company paid a lump sum
contribution into the plan of $18 million, the result of which is that the
Company has no future liabilities under the plan.
In accordance with EITF 97-14, the asset and liability of $16.1 million and
$13.6 million respectively are shown on the balance sheet within the categories
investments and other non current liabilities. See Notes 11 and 16 above.
74
(23) Income Taxes
The (provision)/benefit for income taxes consists of:
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
---------- ---------- ----------
Current
Federal (26,534) (14,007) (7,375)
State and foreign (9,641) (1,556) 118
---------- ---------- ----------
Total current (36,175) (15,563) (7,257)
---------- ---------- ----------
Deferred
Federal (4,268) (622) 3,808
State and foreign 426 123 458
---------- ---------- ----------
Total deferred (3,842) (499) 4,266
---------- ---------- ----------
(40,017) (16,062) (2,991)
---------- ---------- ----------
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
---------- ---------- ----------
Approximate net operating loss
carry-forwards against future federal tax liabilities
60,451 40,418 43,089
---------- ---------- ----------
Approximate net operating loss carry-forwards against
future state and foreign tax liabilities
146,933 185,458 150,572
---------- ---------- ----------
The tax losses shown above have the following expiration dates:
December 31,
2000
$'000
------------
2002 1,885
2003 1,327
2004 3,100
2005 80,373
Available indefinitely 120,699
------------
207,384
------------
The losses stated above include approximately $78 million of state tax
losses for which relief is available at state tax rates of approximately 3%.
75
A comparison of the (provision)/benefit for income taxes as reported to a
provision based on federal statutory rates and consolidated income before income
taxes is as follows:
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
---------- ---------- ----------
(Provision)/benefit at federal statutory rates (40,666) 27,628 (8,247)
Adjusted for:
Permanent differences 669 (6,474) 18
Difference in taxation rates 9,100 (1,200) 1,300
Adjustment to prior year liabilities (1,950) 4,004 -
Goodwill amortization (3,783) (9,758) (4,232)
Other 2,335 (337) (464)
Valuation allowance (1,052) (29,925) 8,634
---------- ---------- ----------
Provision for income taxes (40,017) (16,062) (2,991)
---------- ---------- ----------
An analysis of the deferred tax asset is as follows:
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Losses carried forward 47,596 39,411
Amounts deductible when paid 34,307 28,835
Valuation reserves and provisions 7,100 3,259
Other 1,446 1,568
------------ ------------
90,449 73,073
Valuation allowance (37,014) (35,962)
------------ ------------
Deferred tax assets 53,435 37,111
Excess of tax value over book value of assets (20,166) -
------------ ------------
Net deferred tax assets 33,269 37,111
------------ ------------
Valuation allowances against deferred tax assets have not been provided to
the extent that it is more likely than not that future income and tax planning
strategies will enable losses brought forward to be utilized.
The income (loss) before taxes by tax jurisdiction is as follows:
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
----------- ----------- -----------
U.S. 77,974 (33,924) 30,972
U.K. (37,577) (33,996) 5,763
Other 75,791 (11,016) (13,172)
----------- ----------- -----------
116,188 (78,936) 23,563
----------- ----------- -----------
76
(24) Stock Incentive Plans
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25 ("APB 25") and related interpretations in accounting for
its plans. In the years ended December 31, 2000, 1999 and 1998 the company
recognized a charge under APB 25 of $21,914,000, $11,933,000 and $5,497,000
respectively. Had compensation for stock options awarded under the plans been
determined in accordance with SFAS 123, the Company's net income/(loss) and per
share data would have been changed to the pro forma amounts indicated below:
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
---------- ---------- ----------
Net income/(loss)
As reported 76,171 (94,998) 20,572
Pro forma 88,854 (106,246) 17,439
Income/(loss) per share
As reported - basic $0.30 $(0.39) $0.09
As reported - diluted $0.29 $(0.39) $0.08
Pro forma - basic $0.35 $(0.43) $0.07
Pro forma - diluted $0.34 $(0.43) $0.07
The fair value of stock options used to compute pro forma net income/(loss)
and per share disclosures is the estimated present value at grant date using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
Years ended December 31, 2000 1999 1998
---------- ---------- ----------
Risk free interest rate 5.68%-6.58% 4.67%-6.25% 4.55%-6.57%
Expected dividend yield 0% 0% 0%
Expected life 4 years 4 years 4 years
Expected volatility 64.2% 53.4% 53.2%
Directors and employees have been granted options over ordinary shares
under the following stock option plans: the Shire Pharmaceuticals Group plc 2000
Executive Share Option Scheme ("2000 Executive Scheme"), the Shire Holdings Ltd
Share Options Scheme ("SHL Scheme"), the Imperial Pharmaceutical Services Ltd
Employee Share Option Scheme (Number One) ("SPC Scheme"), the Pharmavene 1991
Stock Option Plan ("SLI Plan"), the Shire Pharmaceuticals Executive Share Option
Scheme (Parts A and B) ("Executive Scheme"), the Shire Pharmaceuticals Sharesave
Scheme ("Sharesave Scheme"), the Shire Pharmaceuticals Group plc Employee Stock
Purchase Plan ("Stock Purchase Plan"), the Richwood Stock Options Plan
("Richwood Plan") and the Roberts Stock Option Plans ("Roberts Plan").
On February 28, 2000, the Remuneration Committee of the Board exercised its
powers to amend the terms of the Executive Share Option Scheme so as to include
a cliff vesting provision.
No further options will be granted under the SHL Scheme, SPC Scheme, SLI
Plan, Richwood Plan or Roberts Plan. In a period of five years, not more than
five per cent of the issued share capital of the Company may be placed under
option under any employee share scheme. In a period of ten years, not more than
ten per cent of the issued share capital of the Company may be placed under
option under any employee share scheme. In addition, the following terms apply
to options that may be granted under the various plans:
77
Executive Scheme: up to 5% of the issued ordinary share capital of the Company,
in any period of ten years, subject to a limit of 2.5% in the period of four
years following adoption of the Scheme and a limit of three per cent in any
period of three calendar years.
Stock Purchase Plan: up to 21,000,000 ordinary shares.
The Company has granted options through December 31, 2000 under the various
plans as follows:
Expiry period from date of
Scheme Number of options issue Vesting period
- --------------- ------------------------ ---------------------------- -------------------
SHL Scheme 572,160 7 years, or 3 months after 1 - 3 years
end of employment
SPC Scheme 48,000 7 years, or 6 months after 2 years
end of employment
Executive Scheme 6,080,083 10 years 3 years, subject to
performance criteria
2000 Executive Scheme 484,248 10 years 3 years, subject to
performance criteria
Sharesave Scheme 210,999 6 months after vesting 3 or 5 years
Stock Purchase Plan 50,294 Automatic exercise 27 months
Richwood Plan 747,067 5 years Immediate on acquisition by
Shire
Roberts Plan 1,047,809 6 years Immediate on merger with
Shire
------------------------
9,240,660
------------------------
A summary of the status of the Company's stock option plans as of December
31, 2000, 1999 and 1998 and the related transactions during the periods then
ended is presented below:
Year ended December 31, 2000 Weighted
average
exercise Number of
price $ shares
-------------- ---------------------
Outstanding at beginning of period 4.39 17,637,142
Granted 16.17 2,556,001
Exercised 4.19 (10,726,407)
Forfeited/expired 12.72 (226,076)
-------------- ---------------------
Outstanding at end of period 7.42 9,240,660
-------------- ---------------------
Exercisable at end of period 2.94 3,632,373
-------------- ---------------------
78
All options granted under the Executive and 2000 Executive schemes were
issued with exercise prices equivalent to the fair market value of the Company's
common stock on the date of grant as these options were granted at market
prices. 79,424 options were granted under the Sharesave Scheme at a price of
(pound)8.56 (approximately $12.79). These options were granted with an exercise
price equal to 80% of the mid-market price on the day before invitations were
issued to employees.
The average fair value of options granted in the year ended December 31,
2000 is $16.26. For the years ended December 31, 1999 and 1998, the weighted
average fair value equates to the weighted average exercise prices of $6.86 and
$5.51 respectively as all options were granted at market prices.
Year ended December 31, 1999 Weighted
Average
Exercise Number of
price $ Shares
-------------- ------------
Outstanding at beginning of period 3.38 20,784,312
Granted 6.86 2,952,734
Exercised 2.37 (4,552,618)
Forfeited/expired 4.90 (1,547,286)
-------------- ------------
Outstanding at end of period 4.39 17,637,142
-------------- ------------
Exercisable at end of period 3.92 13,001,439
-------------- ------------
Year ended December 31, 1998 Weighted
Average
Exercise Number of
price $ Shares
-------------- ------------
Outstanding at beginning of period 2.30 21,002,886
Granted 5.51 7,170,801
Exercised 1.32 (6,628,884)
Forfeited/expired 4.01 (760,491)
-------------- ------------
Outstanding at end of period 3.38 20,784,312
-------------- ------------
Exercisable at end of period 2.60 9,505,075
-------------- ------------
79
Options outstanding at December 31, 2000 have the following
characteristics:
Weighted average
Weighted exercise price of
Number of options average Weighted average exercise Number of options options exercisable
outstanding remaining price of options exercisable
Exercise prices life outstanding
----------------- ------------------- ------------- ------------------- ------------------ -------------------
436,852 $0.45 - $0.46 0.3 $0.45 436,852 $0.45
980,669 $1.23 - $1.73 1.8 $1.49 980,669 $1.49
658,881 $2.30 - $2.84 2.0 $2.61 551,287 $2.61
939,611 $3.22 - $4.24 3.2 $3.64 923,148 $3.64
2,509,049 $5.06 - $6.75 4.4 $5.32 657,523 $5.56
1,218,394 $6.76 - $7.07 5.2 $7.05 82,894 $6.78
100,000 $7.97 - $10.72 6.4 $9.48 - -
2,397,204 $12.79 - $19.72 6.6 $16.21 - -
----------------- --------- ------------ ---------------- -----------------
9,240,660 4.4 $7.42 3,632,373 $2.94
----------------- --------- ------------ ---------------- -----------------
80
Quarterly Results of Operations (Unaudited)
The following table presents summarized unaudited quarterly results for the
years ended December 31, 2000 and 1999.
First Second Third Fourth
$'000 $'000 $'000 $'000
-------- -------- -------- --------
Revenues 118,978 123,812 137,815 137,003
Gross profit 98,073 103,132 112,004 116,241
Net (loss)/income (4,266) 19,371 23,213 37,853
Basic net (loss)/income per share $(0.02) $0.08 $0.09 $0.15
-------- -------- -------- --------
Diluted net (loss)/income per
share $(0.02) $0.07 $0.09 $0.14
-------- -------- -------- --------
First Second Third Fourth
$'000 $'000 $'000 $'000
-------- -------- -------- --------
Revenues 95,252 96,107 105,784 104,389
Gross profit 71,741 76,878 79,381 80,057
Net income/(loss) 10,266 9,409 9,293 (123,966)
Basic net income/(loss) per share $0.04 $0.04 $0.04 $(0.49)
-------- -------- -------- --------
Diluted net income/(loss) per
share $0.04 $0.04 $0.04 $(0.49)
-------- -------- -------- --------
81
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 2000
Balance at Charged to Charged to
Year ended beginning of costs and other Balance at end
December 31, 2000 period expenses accounts Deductions of period
$'000 $'000 $'000 $'000 $'000
--------- --------- --------- --------- ---------
Allowance for
uncollectables 565 254 - - 819
Allowance for
return goods 9,079 11,344 - (8,544) 11,879
--------- --------- --------- --------- ---------
Balance at Charged to Charged to
Year ended beginning of costs and other Balance at end
December 31, 1999 period expenses accounts Deductions of period
$'000 $'000 $'000 $'000 $'000
--------- --------- --------- --------- ---------
Allowance for
uncollectables 577 132 - (144) 565
Allowance for
return goods 9,324 6,892 - (7,137) 9,079
--------- --------- --------- --------- ---------
Balance at Charged to Charged to
Year ended beginning of costs and other Balance at end
December 31, 1998 period expenses accounts Deductions of period
$'000 $'000 $'000 $'000 $'000
--------- --------- --------- --------- ---------
Allowance for
uncollectables 479 432 - (334) 577
Allowance for
return goods 10,003 6,367 (345) (6,701) 9,324
--------- --------- --------- --------- ---------
82
Consent of Independent Auditors
We consent to the incorporation by reference in the Shire
Pharmaceutical Group plc Registration Statements on Form S-8 (Nos. 333-09168 and
333-93543) of our report dated February 16, 1999, included in the Annual Report
on Form 10-K/A of Roberts Pharmaceutical Corporation for the year ended December
31, 1998, and to the use of our report with respect to the consolidated
financial statements of Roberts Pharmaceutical Corporation, as amended and not
included herewith, in the Shire Pharmaceutical Group plc Annual Report (Form
10-K) for the year ended December 31, 2000.
/s/ Ernst & Young L.L.P.
MetroPark, New Jersey
February 23, 2001
ARTHUR ANDERSEN
Consent of Independent Public Accountants
As independent public accountants we consent to the incorporation by reference
in the registration statement on Form S-8 (File Nos. 333-09168 and 333-93543) of
our report dated 14 February 2000, on our audits of the financial statements of
Shire Pharmaceuticals Group plc as of December 31, 2000, 1999 and 1998 and for
the periods then ended, and to the use of our report with respect to the
financial statements of Shire Pharmaceuticals Group plc Annual Report (Form
10-K) for the year ended December 31, 2000.
/s/ Arthur Andersen
27 February 2001
Reading
England