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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2002
Commission File Number: 0-29630
SHIRE PHARMACEUTICALS GROUP PLC
(Exact name of registrant as specified in its charter)
England and Wales 98-0359573
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Hampshire International Business Park, Chineham,
Basingstoke, Hampshire, England RG24 8EP
(Address of principal executive offices) (Zip Code)
44 1256 894 000
(Registrant's telephone number, including area code)
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practical date.
Class Outstanding at October 31, 2002
Common Stock: Ordinary Shares 501,333,970
THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Statements included herein that are not historical facts, are forward-looking
statements. Such forward-looking statements involve a number of risks and
uncertainties and are subject to change at any time. In the event that such
risks or uncertainties materialize, Shire'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, manufacturing and commercialization, the impact of competitive
products, including but not limited to the impact of same on Shire's ADHD
franchise, patents, government regulation and approval, including but not
limited to the expected approval date of lanthanum carbonate (FOSRENOL(TM)), and
other risks and uncertainties detailed from time to time in our filings,
including the Annual Report filed on Form 10-K by Shire with the Securities and
Exchange Commission.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
SHIRE PHARMACEUTICALS GROUP PLC
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share and per share data)
(Unaudited)
September 30, December 31,
2002 2001
ASSETS ----------- -----------
Current assets:
Cash and cash equivalents 694,615 118,040
Marketable securities and other current asset investments 268,665 723,911
Accounts receivable, net 171,493 193,913
Inventories, net 61,485 46,690
Deferred tax asset 24,116 19,430
Prepaid expenses and other current assets 51,124 38,571
------------ ------------
Total current assets 1,271,498 1,140,555
Investments 76,639 68,743
Property, plant and equipment, net 127,639 113,347
Intangible assets, net 574,197 549,044
Deferred tax asset 2,726 12,874
Other assets 23,530 26,168
------------ ------------
Total assets 2,076,229 1,910,731
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current instalments of long-term debt 946 4,325
Accounts and notes payable 160,744 167,152
Unearned income - 17,409
Other current liabilities 9,511 42,730
------------ ------------
Total current liabilities 171,201 231,616
Long-term debt, excluding current instalments 407,922 402,481
Other long-term liabilities 11,803 13,645
------------ ------------
Total liabilities 590,926 647,742
------------ ------------
Shareholders' equity:
Common stock, 5p par value: 800,000,000 shares authorized; and
483,688,065 shares issued and outstanding (2001: 481,817,487) 39,980 39,861
Exchangeable shares: 5,876,415 shares issued and outstanding (2001:
5,978,902) 272,618 277,386
Additional paid-in capital 1,025,899 1,014,796
Accumulated other comprehensive losses (56,843) (93,009)
Accumulated surplus 203,649 23,955
------------ ------------
Total shareholders' equity 1,485,303 1,262,989
------------ ------------
Total liabilities and shareholders' equity 2,076,229 1,910,731
------------ ------------
The accompanying notes are an integral part of these financial statements.
SHIRE PHARMACEUTICALS GROUP PLC
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except share and per share data)
(Unaudited)
3 months to 3 months to 9 months 9 months
September 30, September 30, to to
2002 2001 September 30, September 30,
2002 2001
------------ ------------ ------------ ------------
Product sales 212,041 177,275 627,674 497,366
Licensing and development 726 943 2,331 4,229
Royalties 43,485 37,810 123,573 109,873
Other revenues 5 784 10 1,530
------------ ------------ ------------ ------------
Total revenues 256,257 216,812 753,588 612,998
Costs and expenses:
Cost of revenues 33,337 27,037 91,022 82,081
Research and development 42,026 41,327 138,557 120,838
Selling, general and administrative (inclusive
of stock option compensation (credit)/charge of
($16,000), $51,000, ($166,000) and $2,403,000
respectively) 97,037 71,963 289,587 216,290
Asset impairments and restructuring charges - - - 85,447
Merger transaction expenses - - - 83,470
Losses on dispositions of assets 37 2,028 153 10,126
------------ ------------ ------------ ------------
Total operating expenses 172,437 142,355 519,319 598,252
------------ ------------ ------------ ------------
Operating income 83,820 74,457 234,269 14,746
Interest income 5,142 4,640 14,693 14,251
Interest expense (2,280) (989) (6,053) (5,671)
Other income/(expense), net 904 (182) 3,734 3,497
------------ ------------ ------------ ------------
Total other income, net 3,766 3,469 12,374 12,077
----------- ----------- ----------- -----------
Income before income taxes 87,586 77,926 246,643 26,823
Income taxes (24,001) (19,815) (66,949) (51,439)
------------ ------------ ------------ ------------
Net income/(loss) 63,585 58,111 179,694 (24,616)
------------ ------------ ------------ ------------
Net income/(loss) per common share:
Basic 12.7c 11.8c 35.9c (5.0)c
Diluted 12.4c 11.4c 35.1c (5.0)c
Weighted average number of shares:
Basic 501,026,581 493,790,267 500,394,452 490,750,414
Diluted 524,130,078 503,914,740 524,058,558 490,750,414
SHIRE PHARMACEUTICALS GROUP PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)
9 months to September 30, 2002 2001
--------------- ---------------
Cash flows from operating activities:
Net income/(loss) 179,694 (24,616)
Adjustments to reconcile net income/(loss) to net cash provided by operating
activities:
Depreciation and amortization 34,860 33,753
Stock option compensation (166) 2,403
Tax benefit of stock option compensation charged directly to equity 687 3,307
Non cash exchange gains and losses 2,935 (15,167)
Write-down of long-term investments 5,500 24,937
Write-down of intangible assets - 20,890
Write-down of net assets of business transferred under contractual arrangements
- 30,811
Loss on sale of fixed assets 153 8,112
Loss on sale of intangible assets - 2,014
Changes in assets and liabilities:
Decrease in accounts receivable 25,032 1,551
Increase in inventory (15,706) (420)
Decrease in deferred tax asset 5,462 10,137
Increase in prepayments and other current asset investments (9,546) (13,004)
Decrease in other assets 2,638 8,500
(Decrease)/increase in accounts and notes payable (15,374) 44,699
Decrease in unearned income (17,409) -
Decrease in other current liabilities (28,116) (17,577)
Decrease in other long-term liabilities (1,841) (3,008)
--------------- ---------------
Net cash provided by operating activities 168,803 117,322
--------------- ---------------
Cash flows from investing activities:
Investment in marketable securities, net - (18,450)
Decrease in short-term deposits 455,114 127,911
Purchase of long-term investments (6,921) (13,216)
Purchase of subsidiary undertakings (17,000) -
Purchase of intangible assets (19,227) (33,519)
Purchase of fixed assets (11,613) (6,305)
Proceeds from sale of intangible assets - 4,556
Proceeds from sale of fixed assets - 7,043
--------------- ---------------
Net cash provided by investing activities 400,353 68,020
--------------- ---------------
Cash flows from financing activities:
Proceeds from issue of long-term debt - 391,000
Payments on long-term debt and notes (2,728) (206,990)
Proceeds from issue of common stock, net of expenses - 1,526
Proceeds from exercise of options 4,455 50,514
--------------- --------------
Net cash provided by financing activities 1,727 236,050
--------------- --------------
Effect of foreign exchange rate changes on cash and cash equivalents 5,692 340
--------------- --------------
Net increase in cash and cash equivalents 576,575 421,732
Cash and cash equivalents at beginning of period 118,040 93,266
--------------- --------------
Cash and cash equivalents at end of period 694,615 514,998
--------------- --------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME/(LOSS)
(In thousands of U.S. dollars)
(Unaudited)
3 months to 3 months to 9 months to 9 months to
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net income/(loss) 63,585 58,111 179,694 (24,616)
Foreign currency translation adjustments (1,513) 13,424 36,166 (16,139)
Unrealized holding losses on non-current
investments - (312) - (508)
------------ ------------ ------------ ------------
Comprehensive income/(loss) 62,072 71,223 215,860 (41,263)
------------ ------------ ------------ ------------
There are no tax effects related to the items included above.
SHIRE PHARMACEUTICALS GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Summary of Significant Accounting Policies
a) Description of Operations and Principles of Consolidation
Shire Pharmaceuticals Group plc (Shire), and subsidiaries (collectively, the
Company) is an international specialty pharmaceutical company with a strategic
focus on four therapeutic areas: central nervous system disorders, gastro
intestinal, oncology and anti-infectives. The Company's strategy is further
supported by three technology platforms, lead optimization for small molecules,
drug delivery and biologics.
Shire has sales and marketing subsidiaries with a portfolio of products
targeting the U.S., Canada, the U.K., the Republic of Ireland, France, Germany,
Italy and Spain. Shire also covers other significant pharmaceutical markets
indirectly through distributors. The business is operated and managed within
three individual operating segments: U.S., International and global research and
development. Within these segments, revenues are derived primarily from three
sources: sales of products by Shire's own sales and marketing operations,
royalties and licensing and development fees.
The Company is referred to as "specialty" because its principal products tend to
be prescribed by specialists as opposed to primary care physicians. The
Company's main approach is to start projects in-house through research and
advanced drug delivery or to in-license projects, and then to develop them and
launch them using its sales and marketing capability in the key world
pharmaceutical markets. To complete its geographic coverage, Shire intends to
build a presence in Japan in the mid-term. The Company seeks to protect the
intellectual property upon which it relies through a range of patents and patent
applications (both its own and those of its licensors).
The Company's principal products include:
o in the U.S., ADDERALL XR(TM) and ADDERALL(TM) for the treatment of
Attention Deficit Hyperactivity Disorder (ADHD); AGRYLIN(TM) for the
treatment of elevated blood platelets; PENTASA(TM) for the treatment
of ulcerative colitis; CARBATROL(TM) for the treatment of epilepsy;
and PROAMATINE(TM) for the treatment of postural hypotension. In
addition, the Company receives royalties on sales of REMINYL* for the
treatment of Alzheimer's disease, marketed by Johnson & Johnson, and
on EPIVIR**, COMBIVIR** and TRIZIVIR** for the treatment of HIV/AIDS
and EPIVIR-HBV** for the treatment of hepatitis B, each marketed by
GlaxoSmithKline (G-SK);
o in the U.K. and the Republic of Ireland, the CALCICHEW(TM)range, used
primarily as adjuncts in the treatment of osteoporosis, and REMINYL,
which was launched in September 2000 and is co-promoted by
Janssen-Cilag;
o in Canada, 3TC** for the treatment of HIV/AIDS, COMBIVIR and
HEPTOVIR** (all marketed in partnership with GlaxoSmithKline);
AMATINE(TM); SECOND LOOK(TM), a breast cancer diagnostics product for
which the Company received FDA approval in January 2002; and FLUVIRAL
S/F(TM), a vaccine for the prevention of influenza; and
o in the Rest of the World, royalties on the sales of ZEFFIX** for the
treatment of hepatitis B, marketed by GlaxoSmithKline, and royalties
on sales of REMINYL from Janssen Pharmaceutica.
In addition, the Company has a number of products in late stage development
including FOSRENOL(TM) for the treatment of high blood phosphate levels
associated with kidney failure and TROXATYL(TM) for the treatment of leukemia
and pancreatic cancer. The Company submitted the first regulatory submission for
FOSRENOL under the European Mutual Recognition procedure on March 13, 2001 and a
New Drug Application with the U.S. FDA on April 30, 2002.
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.
* Registered trademark of Johnson and Johnson
** Registered trademark of GlaxoSmithKline
(TM) Unless otherwise indicated, all product names set out in this document
are trademarks of Shire or companies within the Shire Group, many of
which are the subject of trademark registrations in certain
territories.
b) Basis of Presentation
These interim financial statements, which include the operations of the Company
and its wholly owned subsidiaries and the financial information included herein,
are unaudited. They have been prepared in accordance with generally accepted
accounting principles in the United States and Securities and Exchange
Commission regulations for interim reporting. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles in the United States have been
condensed or omitted pursuant to such rules and regulations. However, such
information includes all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary to fairly state
the results of the interim periods. Interim results are not necessarily
indicative of results to be expected for the full year.
The December 31, 2001 balance sheet was derived from audited financial
statements but does not include all disclosures required by US GAAP. However,
the Company believes that the disclosures are adequate to make the information
presented not misleading.
These interim financial statements should be read in conjunction with the
Company's consolidated balance sheets as of December 31, 2001 and 2000, and the
related consolidated statements of operations, cash flows and changes in
stockholders' equity for each of the three years in the period ended December
31, 2001.
c) New Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires that the fair value of a liability for asset
retirement obligations be recognized in the period in which it is incurred if a
reasonable estimate of the fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the related
long-lived asset. SFAS No. 143 is effective for financial statements issued for
fiscal years beginning after June 15, 2002. The Company has assessed the
potential impact of the adoption of SFAS No. 143 and concluded that there is no
impact.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations, for a disposal of a
segment of a business. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001. The adoption of SFAS No. 144 has had no significant
impact on our financial position and results of operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.4,
44 and 64, Amendment of FASB Statement No.13 and Technical Corrections. The
principal change is that gains or losses from extinguishment of debt which are
classified as extraordinary items by SFAS No. 4 will no longer be classified as
such. The provisions of SFAS No. 145 are effective for fiscal years beginning
after May 15, 2002 although early application of the Statement related to the
rescission of SFAS No. 4 is encouraged. The Company plans to adopt SFAS 145 for
its fiscal year ending December 31, 2003. When adopted, prior extraordinary
items related to the extinguishment of debt will need to be reclassified.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, which addresses accounting and processing for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred
in a Restructuring). SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal liability be recognized when the liability
is incurred. Under Issue 94-3, a liability for an exit cost was recognized at
the date of an entity's commitment to an exit plan. Under SFAS No. 146, fair
value is the objective for initial measurement of the liability. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. We do no expect the adoption of SFAS
No. 146 to have a material impact on our financial position, results of
operations or cash flows.
2. Inventory
September 30, December 31,
2002 2001
$'000 $'000
-------------- --------------
Finished goods 31,273 19,880
Work-in-process 21,551 18,262
Raw materials 8,661 8,548
-------------- --------------
61,485 46,690
-------------- --------------
3. Analysis of revenue, operating income 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 U.S., International and
Global Research and Development, each being managed and monitored separately.
The Company evaluates performance based on operating income.
Three months ended September 30, 2002 U.S. International R&D Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
Product sales 173,532 38,509 - 212,041
Licensing and development 726 - - 726
Royalties - 43,485 - 43,485
Other revenues - 5 - 5
---------- ---------- ---------- ----------
Total revenues 174,258 81,999 - 256,257
---------- ---------- ---------- ----------
Cost of revenues 13,103 20,234 - 33,337
Research and development - - 42,026 42,026
Selling, general and administrative 47,353 37,136 - 84,489
Depreciation and amortization 7,548 5,000 - 12,548
Loss on dispositions of assets 37 - - 37
---------- ---------- ---------- ----------
Total operating expenses 68,041 62,370 42,026 172,437
---------- ---------- ---------- ----------
Operating income/(loss) 106,217 19,629 (42,026) 83,820
---------- ---------- ---------- ----------
Three months ended September 30, 2001 U.S. International R&D Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
Product sales 149,853 27,422 - 177,275
Licensing and development 943 - - 943
Royalties 44 37,766 - 37,810
Other revenues - 784 - 784
---------- ---------- ---------- ----------
Total revenues 150,840 65,972 - 216,812
---------- ---------- ---------- ----------
Cost of revenues 13,264 13,773 - 27,037
Research and development - - 41,327 41,327
Selling, general and administrative 34,968 25,269 - 60,237
Depreciation and amortization 3,000 8,726 - 11,726
Losses on dispositions of assets 2,014 14 - 2,028
---------- ---------- ---------- ----------
Total operating expenses 53,246 47,782 41,327 142,355
---------- ---------- ---------- ----------
Operating income/(loss) 97,594 18,190 (41,327) 74,457
---------- ---------- ---------- ----------
Intra-segment group income earned and eliminated from the above table was $23.2
for the three months ended September 30, 2002 (2001: $12.0 million). The R&D
segment received revenue of $17.9 million from the US segment (2001: $9.3
million), and the US segment received revenue of $5.3 million from the
International segment (2001: $2.7 million).
Nine months ended September 30, 2002 U.S. International R&D Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
Product sales 527,005 100,669 - 627,674
Licensing and development 1,929 402 - 2,331
Royalties 221 123,352 - 123,573
Other revenues - 10 - 10
---------- ---------- ---------- ----------
Total revenues 529,155 224,433 - 753,588
---------- ---------- ---------- ----------
Cost of revenues 46,044 44,978 - 91,022
Research and development - - 138,557 138,557
Selling, general and administrative 161,096 93,631 - 254,727
Depreciation and amortization 21,027 13,833 - 34,860
Loss on dispositions of assets 153 - - 153
---------- ---------- ---------- ----------
Total operating expenses 228,320 152,442 138,557 519,319
---------- ---------- ---------- ----------
Operating income/(loss) 300,835 71,991 (138,557) 234,269
---------- ---------- ---------- ----------
Nine months ended September 30, 2001 U.S. International R&D Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
Product sales 418,305 79,061 - 497,366
Licensing and development 3,272 957 - 4,229
Royalties 224 109,649 - 109,873
Other revenues - 1,530 - 1,530
---------- ---------- ---------- ----------
Total revenues 421,801 191,197 - 612,998
---------- ---------- ---------- ----------
Cost of revenues 48,756 33,325 - 82,081
Research and development - - 120,838 120,838
Selling, general and administrative 116,951 65,586 - 182,537
Depreciation and amortization 12,870 20,883 - 33,753
Asset impairments and restructuring charges
- 85,447 - 85,447
Merger transaction expenses - 83,470 - 83,470
Losses on dispositions of assets 2,014 8,112 - 10,126
---------- ---------- ---------- ----------
Total operating expenses 180,591 296,823 120,838 598,252
---------- ---------- ---------- ----------
Operating income/(loss) 241,210 (105,626) (120,838) 14,746
---------- ---------- ---------- ----------
Intra-segment group income earned and eliminated from the above table was $49.5
million for the nine months ended September 30, 2002 (2001: $41.7 million). The
R&D segment received revenue of $36.2 million from the US segment (2001: $29.3
million), and the US segment received revenue of $13.3 million from the
International segment (2001: $12.4 million).
4. Net income/(loss) per share
Basic net income/(loss) per share is based upon the net income/(loss) 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
net income/(loss) 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 of basic and diluted net
income/(loss) per share:
3 months to 3 months to 9 months to 9 months to
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
$'000 $'000 $'000 $'000
---------------- ---------------- ---------------- ----------------
Numerator for basic net income/(loss) per share 63,585 58,111 179,694 (24,616)
Interest charged on convertible debt, net of tax 1,380 22 4,188 -
---------------- ---------------- ---------------- ----------------
Numerator for diluted net income/(loss) per share 64,965 58,133 183,882 (24,616)
---------------- ---------------- ---------------- ----------------
Weighted average number of shares: No. of shares No. of shares No. of shares No. of shares
---------------- ---------------- ---------------- ----------------
Basic - weighted average number of shares
501,026,581 493,790,267 500,394,452 490,750,414
Effect of dilutive stock options 1,993,136 9,543,434 2,553,745 -
Warrants 1,263,184 298,595 1,263,184 -
Convertible debt 19,847,177 282,444 19,847,177 -
---------------- ---------------- ---------------- ----------------
Diluted - weighted average number of shares 524,130,078 503,914,740 524,058,558 490,750,414
---------------- ---------------- ---------------- ----------------
Basic net income/(loss) per share 12.7c 11.8c 35.9c (5.0c)
---------------- ---------------- ---------------- ----------------
Diluted net income/(loss) per share 12.4c 11.4c 35.1c (5.0c)
---------------- ---------------- ---------------- ----------------
The calculation of weighted average number of shares for the nine months ended
September 30, 2001 does not include share options, warrants or convertible debt
because their inclusion in a loss making period would be anti-dilutive.
5. Goodwill and Other Intangible Assets - Adoption of Statement 142
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001.
The statement directs that goodwill and intangible assets that have indefinite
useful lives will not be amortized but rather will be tested at least annually
for impairment. Intangible assets that have finite useful lives will continue to
be amortized over their useful lives, but without the constraint of an arbitrary
ceiling.
a) Goodwill
A reconciliation table for the results for the three and nine months ended
September 30, 2001 is provided to exclude the effect of goodwill amortization in
accordance with transitional disclosures relating to SFAS 142. Results for the
three and nine months ended September 30, 2002 have been prepared in accordance
with SFAS 142.
A transitional assessment of goodwill impairment as of January 1, 2002 has been
completed. The Company has concluded that the fair value of its individual
reporting units exceeds the carrying value of the net assets including goodwill,
and hence no adjusting entry is necessary.
3 months to 3 months to 9 months to 9 months to
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
$'000 $'000 $'000 $'000
---------------- ---------------- ---------------- ----------------
Reported net income/(loss) 63,585 58,111 179,694 (24,616)
Add back: Goodwill amortization - 2,704 - 8,054
---------------- ---------------- ---------------- ----------------
Adjusted net income/(loss) 63,585 60,815 179,694 (16,562)
Interest charged on convertible debt, net of tax 1,380 22 4,188 -
---------------- ---------------- ---------------- ----------------
Numerator for diluted net income/(loss) per share 64,965 60,837 183,882 (16,562)
---------------- ---------------- ---------------- ----------------
Weighted average number of shares: No. of shares No. of shares No. of shares No. of shares
---------------- ---------------- ---------------- ----------------
Basic 501,026,581 493,790,267 500,394,452 490,750,414
Diluted 524,130,078 503,914,740 524,058,558 490,750,414
Basic earnings per share:
Reported net income/(loss) 12.7c 11.8c 35.9c (5.0c)
Goodwill amortization (net of tax effect) - 0.5c - 1.6c
---------------- ---------------- ---------------- ----------------
Adjusted net income/(loss) 12.7c 12.3c 35.9c (3.4c)
---------------- ---------------- ---------------- ----------------
Diluted earnings per share:
Reported net income/(loss) 12.4c 11.4c 35.1c (5.0c)
Goodwill amortization (net of tax effect) - 0.7c - 1.6c
---------------- ---------------- ---------------- ----------------
Adjusted net income/(loss) 12.4c 12.1c 35.1c (3.4c)
---------------- ---------------- ---------------- ----------------
The calculation of the diluted weighted average number of shares for the nine
months ended September 30, 2001 excludes the effects of share options, warrants
and convertible debt because their inclusion in a loss making period would be
anti-dilutive.
There is no tax effect related to the inclusion of goodwill amortization in the
earnings calculation disclosed above.
b) Intangible fixed assets
September 30, September 30,
2002 2001
$'000 $'000
------------ ------------
Intellectual property rights acquired 484,947 469,745
Less: Accumulated amortization (109,164) (88,148)
------------ ------------
375,783 381,597
------------ ------------
The useful economic lives of all intangible assets have been reassessed in
accordance with SFAS No. 142.
Management estimates that the annual amortization charge in respect of
intangible fixed assets held at September 30, 2002 will be approximately $35
million for each of the five years to September 30, 2007. Estimated amortization
expense can be affected by various factors including future acquisitions and
disposals of product rights.
6. Consolidated statement of changes in shareholders' equity
Accumu-
Exchan- lated
Common Exchan- geable other Total
Common Stock geable shares Additional Accumu- compre- sharehold-
Stock No. shares No. paid-in lated hensive ers'
Amount Shares Amount shares capital surplus losses equity
$'000 000's $'000 000's $'000 $'000 $'000 $'000
----------- ----------- ----------------------------------------------------------------------
As at January 1,
2002 39,861 481,817 277,386 5,979 1,014,796 23,955 (93,009) 1,262,989
Net income - - - - - 179,694 - 179,694
Foreign currency
translation - - - - - - 36,166 36,166
Exchange of
exchangeable shares - 308 (4,768) (103) 4,768 - - -
Conversion of loan
note 22 268 - - 1,456 - - 1,478
Options exercised 97 1,295 - - 4,358 - - 4,455
Stock option
compensation - - - - (166) - - (166)
Tax benefit
associated with
exercise of stock
options - - - - 687 - - 687
----------- ----------- -----------------------------------------------------------------------
As at September
30, 2002 39,980 483,688 272,618 5,876 1,025,899 203,649 (56,843) 1,485,303
----------- ----------- ----------------------------------------------------------------------
Each exchangeable share is exchangeable into 3 common shares or one ADS.
7. Contingent liabilities
(i) Commitments
The Company has undertaken to subscribe to interests in companies and
partnerships for amounts totalling $37.9 million (December 31, 2001: $37.7
million). As at September 30, 2002 an amount of $26.3 million (December 31,
2001: $20.1 million) has been subscribed.
(ii) FLUVIRAL
The Company has signed a ten-year contract with the Government of Canada to
assure a state of readiness in the case of an influenza pandemic (worldwide
epidemic) and to provide influenza vaccine for all Canadian citizens in such an
event. Under the contract, Shire Biologics will also supply the Government of
Canada with a substantial proportion of its annual influenza vaccine
requirements over the ten-year period. Subject to mutual agreement, the contract
can be renewed for a further period of between one and ten years from 2011.
The concept of a state of readiness against an influenza pandemic requires the
development of sufficient infrastructure and capacity in Canada to provide 100%
of domestic vaccine needs in the event of an influenza pandemic. Canada would
require 32 million doses of single-strain (monovalent) flu vaccine within a
production period of 16 weeks. Shire Biologics will therefore begin expanding
its current production capacity in order to meet this objective within a
five-year period.
Shire Biologics is committed to Cdn$4.5 million (approximately $3.0 million) of
capital expenditure on immoveables for the purpose of achieving the level of
pandemic readiness required. In addition, a performance bond equal to Cdn$17.5
million (approximately $11.5 million) has been established to ensure that in the
event of default by Shire Biologics, adequate funds will be available to
complete the work according to the terms of the contract.
(iii) Other matters
In addition, the Company is involved in claims and lawsuits in the normal course
of business. It is not possible at this time to determine the ultimate outcome
of any of these claims.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of operations for the three months ended September 30, 2002, as compared
with those for the three months ended September 30, 2001
Overview of financial results
Total revenues for the three months ended September 30, 2002 increased by 18 per
cent to $256.3 million as compared to the three months ended September 30, 2001.
The Company recorded a third quarter net income of $63.6 million (2001: $58.1
million).
Sales and marketing
Product sales of $212.0 million, which represented 83 per cent of total revenues
for the third quarter 2002, increased by 20 per cent over third quarter 2001
product sales of $177.3 million. Product sales in the U.S. continue to represent
a significant percentage of our worldwide product sales, 82 per cent in the
three months ended September 30, 2002 (2001: 85 per cent).
The Company manages and controls the sales and marketing operations on
geographic lines. The following table presents the Company's net product sales
by individual operating segment:
Product sales by segment 3 months to 3 months to
September 30, 2002 September 30, 2001
$'000 $'000 % change
United States 173,532 149,853 +16
International 38,509 27,422 +40
------------ ------------ ------------
Total product sales 212,041 177,275 +20
------------ ------------ ------------
Third quarter combined sales of ADDERALL XR and ADDERALL, marketed in the U.S.
for the treatment of Attention Deficit Hyperactivity Disorder (ADHD), were $96.1
million, representing an increase of 11% in ADDERALL franchise sales over the
comparative period in 2001. ADDERALL XR and ADDERALL had a 27 per cent share of
a strongly growing prescription market for ADHD in the U.S. in September 2002
compared to a 32 per cent in September 2001. The prescription market was 17 per
cent larger in Q3 2002 compared to the equivalent period in 2001.
ADDERALL XR recorded sales of $78.0 million in Q3 2002 and had a prescription
market share of 21 per cent in September 2002, up from 17 per cent in June 2002
(ADDERALL XR was not yet launched in Q3 2001). Sales for the quarter included $2
million in respect of the launch and wholesaler stocking of a new 5mg dose. As
anticipated, sales of ADDERALL XR reflect both the growth in scrip market share
but also increases in wholesaler and retail pipeline levels to support the
growing business. This impact was estimated to be minor in Q3 2002.
In September 2002, ADDERALL had a market share of 6 per cent (September 2001: 32
per cent). The decrease in ADDERALL sales during the third quarter reflects
Shire's continued success in switching patients from ADDERALL to the once a day
treatment (ADDERALL XR), the impact of generic competition throughout the
quarter and further de-stocking of ADDERALL by wholesalers.
Sales of AGRYLIN, for the treatment of thrombocythaemia, were $28.7 million, a
45 per cent increase on Q3 2001 sales of $19.8 million. Sales growth in markets
outside the U.S. grew from $3.9 million to $7.5 million. In the US, market sales
growth of 34 per cent exceeded the scrip growth of 23 per cent during the
quarter, due to a price increase in January 2002, and a lower Q3 2001
comparative quarter caused by some wholesaler de-stocking following an earlier
price increase. Shire achieved 27 per cent of the total US AGRYLIN, Hydrea and
generic hydroxyurea prescription market in September 2002, compared to 24 per
cent for the month of September 2001.
Sales of PENTASA, licensed for the treatment of ulcerative colitis, were $21.6
million for the third quarter 2002, 8 per cent higher than the comparable period
last year. Sales growth was marginally above
prescription growth due to a price increase earlier in the year. PENTASA had an
18 per cent share of the oral mesalamine/obsalazine market in September 2002,
consistent with September 2001.
Sales of PROAMATINE, for the treatment of postural hypotension, were $14.4
million, 62 per cent higher than third quarter 2001 sales of $8.9 million. Sales
growth significantly exceeded scrip growth of 16 per cent due to price increases
in January and May 2002, the launch and subsequent stocking of a new 10mg
strength during the quarter, and a low sales base in the third quarter 2001,
which resulted from wholesaler de-stocking. The U.S. prescription market for
PROAMATINE and FLORINEF(TM) prescriptions indicates that PROAMATINE had a 25 per
cent share in September 2002, consistent with September 2001.
Sales of CARBATROL, containing carbamazepine for the treatment of epilepsy, were
$10.9 million, 38 per cent higher than Q3 2001 sales of $7.9 million. Sales
growth was 33 per cent above scrip growth due to partial re-stocking of
wholesaler pipelines following an easing of supply constraints which have
limited the underlying scrip growth. CARBATROL held 36 per cent of the US
extended release carbamazepine prescription market in September 2002, compared
to 35 per cent in September 2001.
Licensing
Licensing and development fees in respect of Shire Laboratories Inc (SLI) drug
delivery contracts were $0.7 million, a decrease of $0.2 million compared to the
three months ended September 30, 2001, resulting from the phasing of receipts
from third parties.
Royalties
Royalties increased by $5.7 million in the three months ended September 30,
2002, up 15 per cent from the three months ended September 30, 2001, to $43.5
million.
The Company receives royalties from GlaxoSmithKline on the worldwide sales of
3TC (for the treatment of HIV infection / AIDS), and ZEFFIX (an oral treatment
for chronic hepatitis B), with the exception of Canada where a commercialization
partnership with GSK exists.
In December 2001, Shire and GSK agreed a legal settlement with Emory University
relating to worldwide patent disputes. Under the terms of this settlement Shire
pays a royalty on sales of 3TC and ZEFFIX to Emory University. The 3TC and
ZEFFIX royalties are impacted by this in the third quarter 2002 but not in the
comparative quarter of 2001.
3TC royalties for the three months ended September 30, 2002 were $32.5 million,
an increase of 3% over the three months ended September 30, 2001. The underlying
sales growth rate, expressed at constant exchange rates was 6%. The variance in
royalty growth versus sales growth is due to the Emory settlement and currency
movements.
ZEFFIX royalties were $5.5 million in the third quarter 2002, an increase of 17%
over third quarter 2001. The underlying sales growth rate expressed at constant
exchange rates was 19%. The variance in royalty growth versus sales growth is
due to the Emory settlement and currency movements.
The Company also receives royalties from J&J on sales of REMINYL, for the
treatment of Alzheimer's Disease.
Cost of revenues
Gross margin on product sales decreased slightly from 85 per cent for the three
months ended September 30, 2001 to 84 per cent for the three months ended
September 30, 2002, due to a slight change in sales mix.
Research and development
R&D expenditure increased 2 per cent to $42.0 million for the three months ended
September 30, 2002 (2001: $41.3 million). R&D expenditure in third quarter 2002
represented 16 per cent of revenues compared to 19 per cent in third quarter
2001. The low relative spend in the quarter is related to phasing of various
projects, including the completion of certain trials for FOSRENOL, and the
discontinuation of Dirame.
Selling, general and administrative expenses
Selling, general and administrative expenses, excluding the effects of a stock
option compensation credit of $0.01 million (2001: charge $0.05 million) and
depreciation and amortization of $12.5 million (2001: $11.7 million), increased
by 40 per cent to $84.5 million for the three months ended September 30, 2002
(2001: $60.2 million). This increase reflects mainly the sustained high level of
promotional spend associated with the ADDERALL XR launch. As a percentage of
product sales, selling, general and administrative costs represented 40 per cent
for the third quarter 2002 (2001: 34 per cent).
Interest income and expense
For the three months ended September 30, 2002, the Company received interest
income of $5.1 million (Q3 2001: $4.6 million). Interest expense increased from
$1.0 million to $2.3 million; primarily because the Q3 2002 expense reflects a
full quarter of interest incurred in respect of the $400 million convertible
notes issued in August 2001.
Other income (net)
Other income (net) was $0.9 million compared to a $0.2 million expense in the
third quarter of 2001. The prior year quarter was impacted by a $1.8 million
mark to market loss on a fully funded Supplemental Executive Retirement Plan
(SERP), reflecting changes in US stock market conditions.
Income taxes
For the three months ended September 30, 2002 income taxes increased $4.2
million to $24.0 million from $19.8 million for the three months ended September
30, 2001. The Company's effective tax rate before the stock compensation charge
was 27 per cent for the three months ended September 30, 2002 (Q3 2001: 25 per
cent before stock compensation charge and exceptional items). The Company has
recorded net deferred tax assets of $26.8 million (September 30, 2001: $23.4
million). Realization is dependent upon generating sufficient taxable income to
utilize such assets. Although realization on these assets is not assured,
management believes it is more likely than not that the deferred tax assets will
be realized.
Results of operations for the nine months ended September 30, 2002, as compared
with those for the nine months ended September 30, 2001
Overview of financial results
Total revenues for the nine months ended September 30, 2002 increased by 23 per
cent to $753.6 million as compared to the nine months ended September 30, 2001.
The Company recorded a year-to-date net income of $179.7 million (2001: net loss
of $24.6 million after one time merger related expenses and restructuring
charges of $177.0 million).
Sales and marketing
Product sales for the nine months ended September 30, 2002 of $627.7 million,
which represented 83 per cent of total revenues, increased by 26 per cent over
the nine months ended September 30, 2001 product sales of $497.4 million.
Product sales in the U.S. continue to represent a significant percentage of our
worldwide product sales, 84 per cent in the nine months ended September 30, 2002
(2001: 84 per cent).
The Company manages and controls the sales and marketing operations on
geographic lines. The following table presents the Company's net product sales
by individual operating segment:
Product sales by segment 9 months to 9 months to
September 30, September 30,
2002 2001
$'000 $'000 % change
United States 527,005 418,305 +26
International 100,669 79,061 +27
------------ ------------ ------------
Total product sales 627,674 497,366 +26
------------ ------------ ------------
Cost of revenues
Gross margin on product sales increased from 83 per cent for the nine months
ended September 30, 2001 to 85 per cent for the nine months ended September 30,
2002. The main reason for this is that higher margin products represented a
higher proportion of total sales.
Research and development
Research and development expenditure increased 15 per cent to $138.6 million for
the nine months ended September 30, 2002 (2001: $120.8 million). R&D expenditure
in the nine months ended September 30, 2002 represented 18 per cent of revenues
compared to 20 per cent for the nine months ended September 30, 2001.
Selling, general and administrative expenses
Selling, general and administrative expenses, excluding the effects of a stock
option compensation credit of $0.2 million (2001: charge $2.4 million) and
depreciation and amortization of $34.9 million (2001: $33.8 million), increased
by 40 per cent to $254.7 million for the nine months ended September 30, 2002
(2001: $180.1 million). This primarily reflects the high promotional spend
associated with the ADDERALL XR launch. As a percentage of product sales,
selling, general and administrative costs represented 41 per cent for the nine
months ended September 30, 2002 (2001: 36%).
Interest income and expense
For the nine months ended September 30, 2002, the Company received interest
income of $14.7 million (2001: $14.3 million). Interest expense increased from
$5.7 million to $6.1 million. This increase reflects a full year-to-date charge
of interest in respect of the $400 million convertible notes issued in August
2001, which bear interest at a fixed rate of 2% per annum. Conversion to equity
of the $1.5 million Arenol loan note was effected in July 2002.
Income taxes
For the nine months ended September 30, 2002 income taxes increased $15.5
million to $66.9 million from $51.4 million for the nine months ended September
30, 2001. The Company's effective tax rate before the stock compensation credit
was 27 per cent for the nine months ended September 30, 2002 (2001: 25 per
cent). The Company has recorded net deferred tax assets of $26.8 million.
Realization is dependent upon generating sufficient taxable income to utilize
such assets. Although realization on these assets is not assured, management
believes it is more likely than not that the deferred tax assets will be
realized.
Liquidity and Financial Condition
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.
At September 30, 2002, the Company had net cash funds available as follows:
September 30, December 31,
2002 2001
$'000 $'000
-------------- --------------
Cash and cash equivalents 694,615 118,040
Marketable securities and other current
asset investments 268,665 723,911
Debt (408,868) (406,806)
-------------- --------------
Net cash 554,412 435,145
-------------- --------------
Net cash provided by operating activities for the nine months ended September
30, 2002 was $168.8 million compared to $117.3 million for the nine months ended
September 30, 2001.
Investing activities provided $400.4 million for the nine months ended September
30, 2002 (2001: $68.0 million). This was due to an inflow of $455.1 million of
cash by reducing funds placed on short-term deposit, and outflows in respect of
capital expenditure on long-term investments, intangible assets and fixed assets
of $54.8 million.
Investing activities for the nine months ended September 30, 2001 included
$109.5 million from the investment in marketable securities and reduction of
cash placed on short-term deposit, a $53.0 million outflow in respect of capital
expenditure on long-term investments, intangible assets and fixed assets and
proceeds from sales of intangible fixed assets of $11.6 million.
Financing activities provided $1.7 million for the nine months ended September
30, 2002 (2001: $236.1 million). The net inflow included $4.4 million received
from exercises of employee stock options and $2.7 million in repayments of
long-term debt.
Financing activities for the nine months ended September 30, 2001 included a
$50.5 million inflow from exercises of employee stock options and $391.0 million
received from the issue of convertible notes, and repayments of long-term debt
totalling $207.0 million. The repayments were primarily in respect of a $125.0
million term loan owing to Credit Suisse First Boston and $76.9 million repaid
to Glaxo SmithKline. In part, cash funds released from short-term investments,
as noted above, were used to settle the long-term debts outstanding.
Capital expenditure
Capital expenditure on tangible fixed assets for the nine months ended September
30, 2002 was $11.6 million, which primarily comprised laboratory and computer
equipment purchased across the Group.
Other capital expenditure related to the purchase of long-term investments ($6.9
million) and intangible assets ($19.2 million). The expenditure on intangible
assets was in respect of SOLARAZE(TM), a product purchased from Skye Pharma plc
and Bioglan Pharma plc (in administration) in May 2002 for the treatment of a
skin condition related to excessive exposure to the sun, actinic keratosis.
The Company acquired U.S. manufacturer Atlantic Pharmaceutical Services Inc for
$17.0 million in September 2002, to provide in house manufacturing capabilities
to support current and future activities, including the production of ADDERALL
XR, CARBATROL and PENTASA.
Capital expenditure on tangible fixed assets for the nine months ended September
30, 2001 was $6.3 million, which included $1.7 million of equipment related to
the Company's new head office facility occupied from March 2001. Expenditure was
offset by $7.0 million in proceeds received on the disposal of the Toronto
facility. Other capital expenditure related to the purchase of long-term
investments ($13.2 million) and $33.5 million for new products, including
MONOCID(TM) and INDURGAN(TM) marketed by the Company's Italian and Spanish
operations respectively.
ITEM 3. Qualitative and Quantitative Disclosures about Market Risk
Item 7A of the Group's Annual Report on Form 10-K for the year ended December
31, 2001 contains a detailed discussion of the Group's market risk exposure in
relation to interest rate market risk and foreign exchange market risk. There
have been no material changes in the Group's market risk exposure since December
31, 2001.
ITEM 4. Controls and Procedures
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of Shires'
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures (as defined in
Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that these disclosure controls and procedures were effective. No significant
changes were made in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(i) General
The risk of product liability claims, product recalls, litigation and associated
adverse publicity is inherent in the testing, manufacturing, marketing and
selling of pharmaceutical products. The cost of defending against such claims is
expensive even when the claims are not merited. A successful product liability
claim against us could require us to pay a substantial monetary reward. 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 defence 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 product liability insurance, this coverage
may not be adequate. In addition, we cannot be certain that insurance coverage
for present or future products will continue to be available. Moreover, an
adverse judgment in a products liability suit, even if insured or eventually
overturned on appeal, could generate substantial negative publicity about our
products and business and inhibit or prevent commercialization of other
products.
(ii) Phentermine
Shire US Inc. (SUS) is a defendant in fifteen lawsuits still pending in both
U.S. federal and state courts which seek damages for, among other things,
personal injury arising from phentermine products supplied for the treatment of
obesity by SUS and several other pharmaceutical companies. SUS, formerly known
as Shire Richwood Inc., has 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 dexenfluramine. The lawsuits generally
allege the following claims: the defendants marketed phentermine and other
products for the treatment of obesity and misled users about the products and
dangers associated with them; the defendants failed adequately to test
phentermine individually and when taken in combination with the other drugs; and
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. SUS has been named as a defendant in a total of
approximately 3,800 such phentermine lawsuits, but in all but the fifteen cases
referenced above, SUS has been dismissed as a defendant.
SUS became involved with phentermine through its acquisition of certain assets
of Rexar Pharmacal Corporation (Rexar) in January 1994. In addition to SUS
potentially incurring liability as a result of its own production of Oby-Cap, a
phentermine product, the plaintiffs may additionally seek to impose liability on
SUS as successor to Rexar. SUS intends vigorously to defend all the lawsuits and
pursue all available reasonable defenses. SUS denies liability on a number of
grounds including lack of scientific evidence that phentermine, properly
prescribed, causes the alleged side effects and that SUS did not promote
phentermine for long-term combined use as part of the "fen/phen" diet.
Accordingly, SUS intends to defend vigorously any and all claims made against
the Group in respect of phentermine and believes that liability is neither
probable nor quantifiable at this stage of litigation. Legal expenses have been
paid by Eon Labs Manufacturing Inc. (Eon), the supplier to SUS, or Eon's
insurance carriers but such insurance is now exhausted. Eon has agreed to defend
and indemnify SUS in this litigation pursuant to an agreement dated November 30,
2000 between Eon and SUS.
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.
(iii) ADDERALL
Shire filed a Complaint against Barr Laboratories, Inc. on April 30, 2002 in the
District Court of New Jersey. In the Complaint, Shire requested a preliminary
and permanent injunction to prevent Barr from marketing a mixed amphetamine salt
product in a trade dress similar to that of ADDERALL. Shire requested that Barr
recall all such products and also asked for damages. An order denying the
preliminary injunction was issued on August 26, 2002. Shire filed a Notice of
Appeal to the United States Court of Appeals for the Third Circuit on September
16, 2002 appealing the denial of Shire's motion for a preliminary injunction.
(iv) Emory
Shire BioChem was involved in worldwide patent disputes with Emory University
(Emory) relating to lamivudine wherein Shire BioChem opposed certain patents and
patent applications of Emory and wherein Emory opposed certain patents and
patent applications of Shire BioChem. Pursuant to a global Settlement Agreement,
finalized in May 2002, Emory has granted Shire and GSK an exclusive license
under Emory's patent rights for lamivudine. The Settlement Agreement provides
for the resolution of all worldwide patent disputes between the parties relating
to lamivudine and FTC, including pending opposition and revocation proceedings
in Europe, South Korea and Australia. The settlement involves a small royalty
payment on worldwide sales of lamivudine and a license under Shire's FTC patent
rights, in consideration for the settlement of all claims against Shire and GSK
relating to lamivudine.
Shire BioChem was also involved in worldwide patent disputes with Emory and the
University of Georgia Research Foundation (Georgia) relating to certain
dioxolane nucleoside analogs wherein Shire BioChem opposed certain patents and
patent applications of Emory and Georgia and wherein Emory opposed a European
patent of Shire BioChem. Pursuant to global Settlement and License Agreements
finalized in August 2002 by Shire BioChem, Shire Pharmaceuticals Group, Georgia
and Triangle Pharmaceuticals Inc. (Triangle), Shire will grant an exclusive
royalty bearing license to Emory, sub licensable to Triangle, for certain
dioxolane nucleoside analogs, including diamino purine dioxolane (DAPD). A low
royalty will be payable to Shire in relation to this agreeement. Emory, Georgia
and Triangle will grant an exclusive royalty bearing license to Shire for
certain dioxolane nucleosides, including SPD 756. The compounds the subject of
these licenses are in development. A low royalty will be payable by Shire upon
commercialization of SPD 756. The Settlement and License Agreements provide for
the resolution of all worldwide patent disputes relating to the licensed
patents.
(v) GSK
On April 14, 2000, the USPTO declared an interference between BioChem's
hepatitis B patent for lamivudine and a patent application by GSK claiming
methods of treating hepatitis B using lamivudine. There is no guarantee that
Shire will be successful in this interference and that Shire's patent will be
maintained.
(vi) Other matters
In addition, the Company is involved in claims and lawsuits in the normal course
of business. It is not possible at this time to determine the ultimate outcome
of any of these claims.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Audit Committee of the Board of Directors of Shire approved all non-audit
services, including tax advisory and compliance services, provided by the
Company's independent auditors, Deloitte and Touche, during the period covered
by this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
During the third quarter ended September 30, 2002, the following
reports on Form 8-K were filed by the Company with the Securities and
Exchange Commission:
Form 8-K (Item 5 - Other Events, and Item 7 - Financial Statements and
Exhibits), date of earliest event reported September 26, 2002, with
respect to the issue of a press release announcing the 2002 Research &
Development briefing.
Form 8-K (Item 5 - Other Events, and Item 7 - Financial Statements and
Exhibits), date of earliest event reported September 25, 2002, with
respect to the issue of a press release announcing holdings by FMR Corp
and Fidelity International Limited in the ordinary share capital of the
Company, and to the issue of a press release announcing holdings by
Franklin Resources Inc. in the ordinary share capital of the Company.
Form 8-K (Item 5 - Other Events, and Item 7 - Financial Statements and
Exhibits), date of earliest event reported September 24, 2002, with
respect to the issue of a press release announcing the granting of
share options to directors of the Company, pursuant to the Shire
Pharmaceuticals Sharesave Scheme.
Form 8-K (Item 5 - Other Events, and Item 7 - Financial Statements and
Exhibits), date of earliest event reported September 20, 2002, with
respect to the issue of a press release giving notice of the 2002
Research & Development briefings.
Form 8-K (Item 5 - Other Events, and Item 7 - Financial Statements and
Exhibits), date of earliest event reported September 16, 2002, with
respect to the issue of a press release announcing an update on
FOSRENOL.
Form 8-K (Item 4 - Changes in the Registrant's Certifying Accountant),
on July 31, 2002 Arthur Andersen informed Shire Pharmaceuticals Group
plc (the Registrant) that it would no longer be able to serve as the
Registrant's independent auditors and submitted its letter of
resignation. The Registrant subsequently engaged the services of
Deloitte & Touche effective July 31, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHIRE PHARMACEUTICALS GROUP PLC
(Registrant)
Date: November 14, 2002 By: Angus C Russell
Group Finance Director
/s/ Angus C Russell
Date: November 14, 2002 By: Rolf Stahel
Chief Executive
/s/ Rolf Stahel
CERTIFICATIONS
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Angus C Russell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Shire Pharmaceuticals
Group plc (the Registrant);
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Angus C Russell
- ------------------------
Angus C Russell
Group Finance Director
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Rolf Stahel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Shire Pharmaceuticals
Group plc (the Registrant);
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Rolf Stahel
- ------------------------
Rolf Stahel
Chief Executive
Certification
Accompanying Form 10-Q Report
of Shire Pharmaceuticals Group plc
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chapter 63, Title 18 U.S.C. ss.1350(a) and (b))
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chapter 63,
Title 18 U.S.C. ss.1350(a) and (b)), each of the undersigned hereby certifies
that, to the best of their knowledge and belief, the Quarterly Report on Form
10-Q for the period ended September 30, 2002 of Shire Pharmaceuticals Group plc
("Company") fully complies with the requirements of Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 and that the information contained
in such Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: November 14, 2002 /s/ Rolf Stahel
--------------------------------
Rolf Stahel
Chief Executive
Shire Pharmaceuticals Group plc
Dated: November 14, 2002 /s/ Angus C Russell
--------------------------------
Angus C. Russell
Group Finance Director
Shire Pharmaceuticals Group plc