-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ko8nlAtlahR1MZG7pIzBWaT/8b119tyUHN36CYbTTeduq0baT2Qg3Jda5EqLroz5 iHeDvodwciFjKhjwg5aVCQ== 0000950162-02-001019.txt : 20020814 0000950162-02-001019.hdr.sgml : 20020814 20020814105800 ACCESSION NUMBER: 0000950162-02-001019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHIRE PHARMACEUTICALS GROUP PLC CENTRAL INDEX KEY: 0000936402 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-29630 FILM NUMBER: 02732355 BUSINESS ADDRESS: STREET 1: HAMPSHIRE INTL BUSINESS PARK STREET 2: CHINEHAM BASINGSTOKE CITY: HAMPSHIRE ENGLAND RG STATE: X0 BUSINESS PHONE: 1264333455 MAIL ADDRESS: STREET 1: HAMPSHIRE INTL BUSINESS PARK STREET 2: CHINEHAM BASINGSTOKE CITY: HAMPSHIRE ENGLAND RG STATE: X0 10-Q 1 shire2ndqtr063002.txt SECOND QTR ENDING 6/30/02 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 June 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 August 6, 2002 Common Stock: Ordinary Shares 483,355,570 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 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 and commercialization, patents, government regulation and approval, including but not limited to the expected product approval date of lanthanum carbonate (FOSRENOL(TM)/FOZNOL(TM)), the impact of competitive products, including but not limited to the impact of same on Shire's ADHD franchise, 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) June 30, December 31, 2002 2001 ASSETS ----------- ----------- Current assets: Cash and cash equivalents 714,523 118,040 Marketable securities and other current asset investments 225,890 723,911 Accounts receivable, net 144,711 193,913 Inventories, net 57,791 46,690 Deferred tax asset 26,811 19,430 Prepaid expenses and other current assets 36,746 38,571 ------------ ------------ Total current assets 1,206,472 1,140,555 Investments 72,533 68,743 Property, plant and equipment, net 117,662 113,347 Intangible assets, net 567,808 549,044 Deferred tax asset 9,926 12,874 Other assets 25,599 26,168 ------------ ------------ Total assets 2,000,000 1,910,731 ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current instalments of long-term debt 2,270 4,325 Accounts and notes payable 150,631 167,152 Unearned income - 17,409 Other current liabilities 11,422 42,730 ------------ ------------ Total current liabilities 164,323 231,616 Long-term debt, excluding current instalments 401,953 402,481 Other long-term liabilities 12,855 13,645 ------------ ------------ Total liabilities 579,131 647,742 ------------ ------------ Shareholders' equity: Common stock, 5p par value: 800,000,000 shares authorized; and 483,068,965 shares issued and outstanding (2001: 481,817,487) 39,932 39,861 Exchangeable shares: 5,881,066 shares issued and outstanding (2001: 5,978,902) 272,855 277,386 Additional paid-in capital 1,023,347 1,014,796 Accumulated other comprehensive losses (55,329) (93,009) Accumulated surplus 140,064 23,955 ------------ ------------ Total shareholders' equity 1,420,869 1,262,989 ------------ ------------ Total liabilities and shareholders' equity 2,000,000 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 6 months to 6 months to June 30, June 30, June 30, June 30, 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Product sales 212,915 168,577 415,633 320,091 Licensing and development 923 244 1,605 3,286 Royalties 40,512 39,172 80,088 72,063 Other revenues (212) 471 5 746 ------------ ------------ ------------ ------------ Total revenues 254,138 208,464 497,331 396,186 Costs and expenses: Cost of revenues (31,174) (26,659) (57,685) (55,044) Research and development (46,802) (41,827) (96,531) (79,511) Selling, general and administrative (inclusive of stock option compensation charge of $152,000, $232,000, ($150,000) and $2,352,000 respectively) (98,473) (75,165) (192,550) (144,326) Asset impairments and restructuring charges - (85,447) - (85,447) Merger transaction expenses - (83,470) - (83,470) Losses on dispositions of assets (116) (8,098) (116) (8,098) ------------ ------------ ------------ ------------ Total operating expenses (176,565) (320,666) (346,882) (455,896) ------------ ------------ ------------ ------------ Operating income/(loss) 77,573 (112,202) 150,449 (59,710) Interest income 4,820 4,471 9,551 9,611 Interest expense (1,796) (1,684) (3,773) (4,682) Other income, net 945 2,909 2,830 3,679 ------------ ------------ ------------ ------------ Total other income, net 3,969 5,696 8,608 8,608 ----------- ----------- ----------- ----------- Income/(loss) before income taxes 81,542 (106,506) 159,057 (51,102) Income taxes (22,235) (17,685) (42,948) (31,624) ------------ ------------ ------------ ------------ Net income/(loss) 59,307 (124,191) 116,109 (82,726) ------------ ------------ ------------ ------------ Net income/(loss) per share: Basic 11.9c (25.3c) 23.2c (16.9c) Diluted 11.6c (25.3c) 22.6c (16.9c) Weighted average number of shares: Basic 500,365,947 489,977,184 500,147,383 489,205,296 Diluted 523,990,414 489,977,184 525,324,877 489,205,296
SHIRE PHARMACEUTICALS GROUP PLC CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands of U.S. dollars) (Unaudited) 6 months to 6 months to June 30, June 30, 2002 2001 Cash flows from operating activities: --------------- --------------- Net income/(loss) 116,109 (82,726) Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Depreciation and amortization 22,312 22,027 Stock option compensation (150) 2,352 Tax benefit of stock option compensation charged directly to equity 689 3,307 Non cash exchange gains and losses 1,672 (5,031) Write-down of long-term investments 2,500 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 116 8,098 Changes in assets and liabilities: Decrease in accounts receivable 53,404 17,735 (Increase)/decrease in inventory (9,987) 1,671 (Increase)/decrease in deferred tax asset (4,433) 13,768 Decrease/(increase) in prepayments and other current asset investments 4,328 (13,414) Decrease in other assets 569 1,064 (Decrease)/increase in accounts and notes payable (24,543) 34,957 Decrease in unearned income (17,409) - Decrease in other current liabilities (26,609) (7,186) Decrease in other long-term liabilities (790) (1,757) --------------- --------------- Net cash provided by operating activities 117,778 71,503 --------------- --------------- Cash flows from investing activities: Redemption of marketable securities - 38,754 Decrease in short-term deposits 498,021 98,342 Purchase of long-term investments (3,086) (11,107) Purchase of intangible assets (19,040) (32,035) Purchase of fixed assets (7,648) (6,044) Proceeds from sale of other assets - 547 Proceeds from sale of fixed assets - 1,200 --------------- --------------- Net cash provided by investing activities 468,247 89,657 --------------- --------------- Cash flows from financing activities: Payments on long-term debt and notes (2,583) (201,876) Proceeds from issue of common stock, net of expenses - (17) Proceeds from exercise of options 3,552 23,201 --------------- -------------- Net cash provided by/(used in) financing activities 969 (178,692) --------------- -------------- Effect of foreign exchange rate changes on cash and cash equivalents 9,489 (3,910) --------------- -------------- Net increase/(decrease) in cash and cash equivalents 596,483 (21,442) Cash and cash equivalents at beginning of period 118,040 93,266 --------------- -------------- Cash and cash equivalents at end of period 714,523 71,824 --------------- --------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME/(LOSS) (In thousands of U.S. dollars) (Unaudited) 3 months to 3 months to 6 months to 6 months to June 30, June 30, June 30, June 30, 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Net income/(loss) 59,307 (124,191) 116,109 (82,726) Foreign currency translation adjustments 43,644 2,609 37,680 (29,563) Unrealized holding gains/(losses) on non-current investments - 14 - (196) ------------ ------------ ------------ ------------ Comprehensive income/(loss) 102,951 (121,568) 153,789 (112,485) ------------ ------------ ------------ ------------
There are no tax effects related to the items included above. SHIRE PHARMACEUTICALS GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies a) Description of Operations and Principles of Consolidation Shire Pharmaceuticals Group plc (the Company) is an international specialty pharmaceutical company with a strategic focus on three therapeutic areas: central nervous system disorders, oncology and anti-infectives. The Company's strategy is further supported by two technology platforms, drug delivery and biologics. The Company 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 the Company'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 eight of the key world markets (to complete its geographic coverage of the key world pharmaceutical markets, Shire intends to build a presence in Japan by 2004). 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; 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) (FOZNOL(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 The accompanying consolidated 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. These consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the three years ended December 31, 2001 and notes thereto. The results for the period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. 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. 2. Inventory June 30, December 31, 2002 2001 $'000 $'000 -------------- -------------- Finished goods 24,961 19,880 Work-in-process 21,352 18,262 Raw materials 11,478 8,548 -------------- -------------- 57,791 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 June 30, 2002 U.S. International R&D Total $'000 $'000 $'000 $'000 ---------- ---------- ---------- ---------- Product sales 179,949 32,966 - 212,915 Licensing and development 662 261 - 923 Royalties 7 40,505 - 40,512 Other revenues - (212) - (212) ---------- ---------- ---------- ---------- Total revenues 180,618 73,520 - 254,138 ---------- ---------- ---------- ---------- Cost of revenues 18,521 12,653 - 31,174 Research and development - - 46,802 46,802 Selling, general and administrative 57,292 29,042 - 86,334 Depreciation and amortization 7,534 4,605 - 12,139 Loss on dispositions of assets 116 - - 116 ---------- ---------- ---------- ---------- Total operating expenses 83,463 46,300 46,802 176,565 ---------- ---------- ---------- ---------- Operating income/(loss) 97,155 27,220 (46,802) 77,573 ---------- ---------- ---------- ---------- Three months ended June 30, 2001 U.S. International R&D Total $'000 $'000 $'000 $'000 ---------- ---------- ---------- ---------- Product sales 141,648 26,929 - 168,577 Licensing and development 244 - - 244 Royalties 120 39,052 - 39,172 Other revenues - 471 - 471 ---------- ---------- ---------- ---------- Total revenues 142,012 66,452 - 208,464 ---------- ---------- ---------- ---------- Cost of revenues 17,616 9,043 - 26,659 Research and development - - 41,827 41,827 Selling, general and administrative 45,580 18,381 - 63,961 Depreciation and amortization 5,410 5,794 - 11,204 Asset impairments and restructuring charges - 85,447 - 85,447 Merger transaction expenses - 83,470 - 83,470 Losses on dispositions of assets - 8,098 - 8,098 ---------- ---------- ---------- ---------- Total operating expenses 68,606 210,233 41,827 320,666 ---------- ---------- ---------- ---------- Operating income/(loss) 73,406 (143,781) (41,827) (112,202) ---------- ---------- ---------- ----------
Six months ended June 30, 2002 U.S. International R&D Total $'000 $'000 $'000 $'000 ---------- ---------- ---------- ---------- Product sales 353,473 62,160 - 415,633 Licensing and development 1,203 402 - 1,605 Royalties 221 79,867 - 80,088 Other revenues - 5 - 5 ---------- ---------- ---------- ---------- Total revenues 354,897 142,434 - 497,331 ---------- ---------- ---------- ---------- Cost of revenues 32,941 24,744 - 57,685 Research and development - - 96,531 96,531 Selling, general and administrative 113,743 56,495 - 170,238 Depreciation and amortization 13,479 8,833 - 22,312 Loss on dispositions of assets 116 - - 116 ---------- ---------- ---------- ---------- Total operating expenses 160,279 90,072 96,531 346,882 ---------- ---------- ---------- ---------- Operating income/(loss) 194,618 52,362 (96,531) 150,449 ---------- ---------- ---------- ---------- Six months ended June 30, 2001 U.S. International R&D Total $'000 $'000 $'000 $'000 ---------- ---------- ---------- ---------- Product sales 268,452 51,639 - 320,091 Licensing and development 2,329 957 - 3,286 Royalties 180 71,883 - 72,063 Other revenues - 746 - 746 ---------- ---------- ---------- ---------- Total revenues 270,961 125,225 - 396,186 ---------- ---------- ---------- ---------- Cost of revenues 35,493 19,551 - 55,044 Research and development - - 79,511 79,511 Selling, general and administrative 81,986 40,313 - 122,299 Depreciation and amortization 9,870 12,157 - 22,027 Asset impairments and restructuring charges - 85,447 - 85,447 Merger transaction expenses - 83,470 - 83,470 Losses on dispositions of assets - 8,098 - 8,098 ---------- ---------- ---------- ---------- Total operating expenses 127,349 249,036 79,511 455,896 ---------- ---------- ---------- ---------- Operating income/(loss) 143,612 (123,811) (79,511) (59,710) ---------- ---------- ---------- ----------
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 6 months to 6 months to June 30, June 30, June 30, June 30, 2002 2001 2002 2001 $'000 $'000 $'000 $'000 ---------------- ---------------- ---------------- ---------------- Numerator for basic net income/(loss) per share 59,307 (124,191) 116,109 (82,726) Interest charged on convertible debt, net of tax 1,411 - 2,808 - ---------------- ---------------- ---------------- ---------------- Numerator for diluted net income/(loss) per share 60,718 (124,191) 118,917 (82,726) ---------------- ---------------- ---------------- ---------------- No. of No. of No. of shares No. of shares Weighted average number of shares: shares shares ---------------- ---------------- ---------------- ---------------- Basic - weighted average number of shares 500,365,947 489,977,184 500,147,383 489,205,296 Effect of dilutive stock options 2,357,078 - 3,910,105 - Warrants 1,144,179 - 1,144,179 - Convertible debt 20,123,210 - 20,123,210 - ---------------- ---------------- ---------------- ---------------- Diluted - weighted average number of shares 523,990,414 489,977,184 525,324,877 489,205,296 ---------------- ---------------- ---------------- ---------------- Basic net income/(loss) per share 11.9c (25.3c) 23.2c (16.9c) ---------------- ---------------- ---------------- ---------------- Diluted net income/(loss) per share 11.6c (25.3c) 22.6c (16.9c) ---------------- ---------------- ---------------- ----------------
The calculation of weighted average number of shares for the three and six months ended June 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 six months ended June 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 six months ended June 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 6 months to 6 months to June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 $'000 $'000 $'000 $'000 ---------------- ---------------- ---------------- ---------------- Reported net income/(loss) 59,307 (124,191) 116,109 (82,726) Add back: Goodwill amortization - 2,650 - 5,349 ---------------- ---------------- ---------------- ---------------- Adjusted net income/(loss) 59,307 (121,541) 116,109 (77,377) Interest charged on convertible debt, net of tax 1,411 - 2,808 - ---------------- ---------------- ---------------- ---------------- Numerator for diluted net income/(loss) per share 60,718 (121,541) 118,917 (77,377) ---------------- ---------------- ---------------- ---------------- No. of No. of No. of shares No. of shares Weighted average number of shares: shares shares ---------------- ---------------- ---------------- ---------------- Basic 500,365,947 489,977,184 500,147,383 489,205,296 Diluted 523,990,414 489,977,184 525,324,877 489,205,296 Basic earnings per share: Reported net income/(loss) 11.9c (25.3c) 23.2c (16.9c) Goodwill amortization (net of tax effect) - 0.5c - 1.1c ---------------- ---------------- ---------------- ---------------- Adjusted net income/(loss) 11.9c (24.8c) 23.2c (15.8c) ---------------- ---------------- ---------------- ---------------- Diluted earnings per share: Reported net income/(loss) 11.6c (25.3c) 22.6c (16.9c) Goodwill amortization (net of tax effect) - 0.5c - 1.1c ---------------- ---------------- ---------------- ---------------- Adjusted net income/(loss) 11.6c (24.8c) 22.6c (15.8c) ---------------- ---------------- ---------------- ----------------
The calculation of the diluted weighted average number of shares for the three and six months ended June 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 June 30, June 30, 2002 2001 $'000 $'000 ------------ ------------ Intellectual property rights acquired 485,036 464,817 Less: Accumulated amortization (100,878) (75,190) ------------ ------------ 384,158 389,627 ------------ ------------ The useful economic lives of all intangible assets have been reassessed in accordance with SFAS 142. Management estimates that the annual amortization charge in respect of intangible fixed assets held at June 30, 2002 will be approximately $35 million for each of the five years to June 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 - - - - - 116,109 - 116,109 Foreign currency translation - - - - - - 37,680 37,680 Exchange of exchangeable shares - 294 (4,531) (98) 4,531 - - - Options exercised 71 958 - - 3,482 - - 3,553 Stock option compensation - - - - (150) - - (150) Tax benefit associated with exercise of stock options - - - - 688 - - 688 ----------- ----------- ----------------------------------------------------------------------- As at June 30, 2002 39,932 483,069 272,855 5,881 1,023,347 140,064 (55,329) 1,420,869 ----------- ----------- ----------------------------------------------------------------------
Each exchangeable share is exchangeable into 3 ordinary shares or one ADS. 7. Contingent liabilities (i) Phentermine Shire US Inc. (SUS) is a defendant in twelve 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 twelve 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. (ii) ADDERALL On September 22, 2000, a lawsuit was filed against Shire in the United States District Court for the District of North Dakota. The suit involves an incident in 1999 in which a young North Dakota man, Ryan Ehlis, shot and killed his infant daughter and wounded himself, allegedly as a result of a psychotic reaction to ADDERALL. Mr Ehlis' physician had prescribed ADDERALL for the treatment of ADHD. Trial is set to commence in August 2002.Shire intends to vigorously defend such action. On October 3, 2001, a lawsuit was filed against Shire in Boone County Kentucky Circuit Court. The suit involves an automobile accident that is alleged to have been the result of a psychotic episode experienced by the driver of the car following an ingestion of ADDERALL. As a result of the accident, the driver's young son was killed. Shire has filed an answer to this lawsuit and intends to vigorously defend such action. On July 27, 2001, Shire received service of a complaint filed in state court in Texas that alleged that ADDERALL caused or contributed to a stroke. The plaintiff, an adult female aged 39, was prescribed ADDERALL as treatment for her ADHD. The complaint alleges that the plaintiff used ADDERALL during the period from January 1999 to September 1999. Also named as defendants are two doctors who were involved in diagnosing the plaintiff's ADHD and for prescribing ADDERALL for its treatment. Trial is set to commence in November 2002. Shire intends to vigorously defend such action. 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. In connection with the preliminary injunction, Barr has moved to dismiss the Complaint. A hearing on the preliminary injunction was held on June 3, 2002. The decision from the District Court is pending. (iii) AGRYLIN SUS has been named as a defendant in a lawsuit filed in a Texas state court involving AGRYLIN. The complaint was served on Shire on December 26, 2001. Shire's contract manufacturer for AGRYLIN, Mallinckrodt, Inc., is also a named defendant. The complaint alleges that the Plaintiff suffered a debilitating stroke due to the fact that the Plaintiff was allegedly unable to procure this product in some fashion. Shire has filed an answer to the complaint in which it denies the allegations in the Plaintiffs original petition. Shire intends to vigorously defend such action. (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. Further detail regarding these disputes is provided below. In November 2001, Shire and GlaxoSmithKline (GSK) signed an agreement as to the key terms of a global settlement agreement with Emory. In May 2002 the parties finalized the Settlement Agreement. Pursuant to the Settlement Agreement, Emory has granted Shire and GSK an exclusive license under Emory's patent rights for lamivudine. The Settlement Agreement provides for the resolution of the below noted worldwide patent disputes between the parties relating to lamivudine. The settlement involves an upfront payment to Emory by Shire of $2.5 million and a royalty payment from Shire of 0.5% on worldwide sales of lamivudine over an 11 year period commencing on January 1, 2001 and a licence under Shire's FTC patent rights, in consideration for the settlement of all claims against Shire and GSK relating to lamivudine. The total cost to Shire in 2001 of the settlement (including upfront payment) was $7.7 million. Emory filed oppositions to two of Shire BioChem's granted patent applications in Europe which cover oxathiolane nucleosides including lamivudine and dioxolane nucleosides, including troxacitabine, related nucleoside analogues and use of these analogues for treating viral infections. In oral hearings held in 1999, both of these oppositions were dismissed by the Opposition Division of the European Patent Office. Emory is not pursuing its appeal of the decision relating to oxathiolanes. Emory had filed an appeal against the dioxolane-related decision in the European Patent Office but this appeal has been withdrawn in July 2002. This appeal was withdrawn by Emory pursuant to a Binding Material Terms Agreement executed in July 2002 by Shire BioChem , Shire, the University of Georgia Research Foundation (Georgia) and Triangle Pharmaceuticals Inc. (Triangle). Pursuant to the Agreement Shire will grant an exclusive royalty bearing license to Emory, sub licensable to Triangle, for certain dioxolane nucleoside analogs, including diamino purine dioxolane (DAPD). 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 licences are in development. A low royalty will be payable by Shire upon commercialization of SPD 756 .The Binding Material Terms Agreement provides for the resolution of worldwide patent disputes relating to the licensed patents. Emory has filed revocation actions in Australia and South Korea against Shire BioChem's granted patents covering lamivudine. Shire BioChem has aggressively defended these patents. In accordance with the Settlement Agreement, Emory has agreed to withdraw these proceedings relating to lamivudine. On July 23, 1996, Emory filed a complaint in the U.S. alleging infringement from the commercialization of EPIVIR by Shire BioChem and GSK, Shire BioChem's exclusive licensee in the U.S., of an Emory U.S. patent granted that same day. Shire BioChem considers this patent infringement suit to be without merit and has successfully challenged the validity of Emory's patent in the below noted interference proceedings. On May 19, 1998, the United States Patent and Trademark Office (USPTO) declared an interference between the Emory patent that is the subject of the above mentioned lawsuit and a pending patent application of Shire BioChem. The Board of Patent Appeals and Interferences issued a decision on December 21, 2000 invalidating Emory's patent. Emory had appealed the decision. Pursuant to the Settlement Agreement, the infringement suit and Emory's appeal from the interference decision were dismissed in June 2002. Emory has obtained a granted patent application in Europe relating to oxathiolane nucleosides, including lamivudine. Shire BioChem and GSK filed an opposition to this grant. An examined patent application filed by Emory claiming lamivudine was successfully opposed by Shire BioChem in Australia and Norway. Emory has filed an appeal from the Australian decision in the Federal Court of Australia. Shire BioChem also filed an appeal from certain portions of the decision. These proceedings will be resolved in accordance with the Settlement Agreement. An examined patent application filed by Emory claiming lamivudine was opposed by Shire BioChem and GSK in South Korea and such Emory claims to lamivudine were cancelled by the South Korean Patent Office. Emory has appealed this decision. Shire BioChem is aware that Emory has filed patent applications in other countries, which Shire BioChem believes may claim similar subject matter. All such patent applications and related disputes will be subject to the Settlement Agreement. (v) Yale On November 23, 1999, the USPTO declared an interference between Shire's hepatitis B patent for lamivudine and a patent application filed by Yale University (Yale) claiming methods of treating hepatitis B using lamivudine. The Company believes that this application is licensed to Vion Pharmaceuticals, Inc. (Vion), formerly known as OncoRx, Inc., a New Haven, Connecticut-based, U.S. company. On March 28, 2002, the Board of Patent Appeals and Interferences issued an order awarding priority to the Company's patent. Yale has not appealed from the Board's judgement and the Company is not aware of corresponding patent applications by Yale or Vion in countries other than the US. On April 14, 2000, the USPTO declared a further 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) Commitments The Company has undertaken to subscribe to interests in companies and partnerships for amounts totalling $39.6 million. As at June 30, 2002 an amount of $23.4 million (June 30, 2001: $21.0 million) has been subscribed. (vii) 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. (viii) Other matters In addition, the Company is involved in other 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 June 30, 2002, as compared with those for the three months ended June 30, 2001 Overview of financial results Total revenues for the three months ended June 30, 2002 increased by 22 per cent to $254.1 million as compared to the three months ended June 30, 2001. The Company recorded a second quarter net income of $59.3 million (2001: net loss $124.2 million after one time merger related expenses and restructuring charges of $177.0 million). Sales and marketing Product sales of $212.9 million, which represented 84 per cent of total revenues for the second quarter 2002, increased by 26 per cent over second quarter 2001 product sales of $168.6 million. Product sales in the U.S. continue to represent a significant percentage of our worldwide sales, 85 per cent in the three months ended June 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 3 months to 3 months to June 30, 2002 June 30, 2001 $'000 $'000 % change United States 179,949 141,648 +27 International 32,966 26,929 +22 ------------ ------------ ------------ Total product sales 212,915 168,577 +26 ------------ ------------ ------------ Second quarter combined sales of ADDERALL XR and ADDERALL, marketed in the U.S. for the treatment of Attention Deficit Hyperactivity Disorder (ADHD), were $104.1 million, representing growth of 50 per cent over the second quarter of 2001. ADDERALL XR and ADDERALL had a 26 per cent share of the prescription market for ADHD in the U.S. in June 2002 compared to 33 per cent in June 2001. Sales of AGRYLIN, the only U.S. product licensed for the treatment of essential thrombocythemia were $29.4 million, a 14 per cent increase over second quarter 2001 sales of $25.8 million. Shire achieved a prescription share of 26 per cent of the total U.S. AGRYLIN market (including Hydrea (a trademark of Bristol Myers Squibb Company) and generic hydroxyurea), in June 2002 compared to 21 per cent in June 2001. Sales of PENTASA, licensed for the treatment of ulcerative colitis, were $21.5 million for the second quarter 2002, 13 per cent higher than the comparable period last year. PENTASA had an 18 per cent share of the oral mesalamine/obsalazine market in June 2002, consistent with June 2001. Sales of PROAMATINE, for the treatment of postural hypotension, were $10.9 million, 3 per cent higher than second quarter 2001 sales of $10.5 million. The U.S. prescription market for PROAMATINE and FLORINEF(TM) prescriptions indicates that PROAMATINE had a 24 per cent share in June 2002, consistent with June 2001. CARBATROL containing carbamazapine for the treatment of epilepsy, recorded sales growth of 27 per cent from sales of $9.9 million in the three months ended June 30, 2001 to $12.6 million in the three months ended June 30, 2002. This translates to 36 per cent of the U.S. extended release carbamazepine prescription market in June 2002, compared to 34 per cent in June 2001. Royalties Royalties increased by $1.3 million in the three months ended June 30, 2002, up 3 per cent from the three months ended June 30, 2001, to $40.5 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. 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 increased from 84 per cent for the three months ended June 30, 2001 to 85 per cent for the three months ended June 30, 2002. This is a reflection of the product mix as the higher margin products, ADDERALL XR, ADDERALL and AGRYLIN, represented approximately 63 per cent of total product sales in the three months ended June 30, 2002 compared to 56 per cent in the three months ended June 30, 2001. Improved pricing in respect of the ADHD franchise has also contributed to the higher gross margin for the three months ended June 30, 2002. Research and development R&D expenditure increased 12 per cent to $46.8 million for the three months ended June 30, 2002 (2001: $41.8 million). R&D expenditure in second quarter 2002 represented 18 per cent of revenues compared to 20 per cent in second quarter 2001. Selling, general and administrative expenses Selling, general and administrative expenses, excluding the effects of a stock option compensation charge of $0.2 million (2001: $0.2 million) and depreciation and amortization of $12.1 million (2001: $11.2 million), increased by 35 per cent to $86.1 million for the three months ended June 30, 2002 (2001: $63.7 million). This reflects the high 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 second quarter 2002 (2001: 38%). Interest income and expense For the three months ended June 30, 2002, the Company received interest income of $4.8 million (Q2 2001: $4.5 million). Interest expense increased from $1.7 million to $1.8 million. Income taxes For the three months ended June 30, 2002 income taxes increased $4.5 million to $22.2 million from $17.7 million for the three months ended June 30, 2001. The Company's effective tax rate before the stock compensation charge was 27 per cent for the three months ended June 30, 2002 (Q2 2001: 25 per cent before stock compensation charge and exceptional items). The Company has recorded net deferred tax assets of $36.7 million (June 30, 2001: $32.3 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 six months ended June 30, 2002, as compared with those for the six months ended June 30, 2001 Overview of financial results Total revenues for the six months ended June 30, 2002 increased by 26 per cent to $497.3 million as compared to the six months ended June 30, 2001. The Company recorded a half year net income of $116.1 million (2001: net loss $82.7 million after one time merger related expenses and restructuring charges of $177.0 million). Sales and marketing Product sales of $415.6 million, which represented 84 per cent of total revenues, increased by 30 per cent over half year 2001 product sales of $320.1 million. Product sales in the U.S. continue to represent a significant percentage of our worldwide product sales, 85 per cent in the six months ended June 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 6 months to 6 months to June 30, June 30, 2002 2001 $'000 $'000 % change United States 353,473 268,452 +32 International 62,160 51,639 +20 ------------ ------------ ------------ Total product sales 415,633 320,091 +30 ------------ ------------ ------------ Cost of revenues Gross margin on product sales increased from 83 per cent for the six months ended June 30, 2001 to 86 per cent for the six months ended June 30, 2002. The main reason for this is that higher margin products represented a higher proportion of total sales in the current period. Research and development Research and development expenditure increased 21 per cent to $96.5 million for the six months ended June 30, 2002 (2001: $79.5 million). R&D expenditure in half year 2002 represented 19 per cent of revenues compared to 20 per cent in first half year 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 $22.3 million (2001: $22.0 million), increased by 42 per cent to $170.4 million for the six months ended June 30, 2002 (2001: $119.9 million). This 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 half year 2002 (2001: 37%). Interest income and expense For the six months ended June 30, 2002, the Company received interest income of $9.6 million (Q2 2001: $9.6 million). Interest expense decreased from $4.7 million to $3.8 million. This decrease reflects an improved debt profile resulting from the repayment of a $125 million term loan in May 2001 and the subsequent issue of the $400 million convertible notes in August 2001, which bear interest at the comparatively lower fixed rate of 2% per annum. Income taxes For the six months ended June 30, 2002 income taxes increased $11.3 million to $42.9 million from $31.6 million for the six months ended June 30, 2001. The Company's effective tax rate before the stock compensation credit was 27 per cent for the six months ended June 30, 2002 (2001: 25 per cent). The Company has recorded net deferred tax assets of $36.7million. 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 June 30, 2002, the Company had net cash funds available as follows: June 30, December 31, 2002 2001 $'000 $'000 -------------- -------------- Cash and cash equivalents 714,523 118,040 Marketable securities and other current asset investments 225,890 723,911 Debt (404,223) (406,806) -------------- -------------- Net cash 536,190 435,145 -------------- -------------- Net cash provided by operating activities for the six months ended June 30, 2002 was $117.8 million compared to $71.5 million for the six months ended June 30, 2001. Investing activities provided $468.2 million for the six months ended June 30, 2002 (2001: $89.7 million). This was due to an inflow of $498.0 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 $29.8 million. Investing activities for the six months ended June 30, 2001 included $137.1 million from the redemption of marketable securities and reduction in cash placed on short-term deposit, and outflows in respect of net capital expenditure on long-term investments, intangible assets and fixed assets of $47.4 million. Financing activities provided $1.0 million for the six months ended June 30, 2002 (2001: used $178.7 million). The $1.0 million inflow included $3.6 million received from exercises of employee stock options and $2.6 million in repayments of long-term debt. Financing activities for the six months ended June 30, 2001 included a $23.2 million inflow from exercises of employee stock options and repayments of long-term debt totalling $201.9 million. Capital expenditure Capital expenditure on tangible fixed assets for the six months ended June 30, 2002 was $7.6 million, which was primarily laboratory and computer equipment purchased across the Group. Other capital expenditure related to the purchase of long-term investments ($3.1 million) and intangible assets ($19.0 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. Capital expenditure on tangible fixed assets for the six months ended June 30, 2001 was $6.0 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 $1.2 million in proceeds received on the disposal of the Toronto facility. Other capital expenditure related to the purchase of long-term investments ($11.1 million) and $32.0 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. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS (i) Phentermine Shire US Inc. (SUS) is a defendant in twelve 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 twelve 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. (ii) ADDERALL On September 22, 2000, a lawsuit was filed against Shire in the United States District Court for the District of North Dakota. The suit involves an incident in 1999 in which a young North Dakota man, Ryan Ehlis, shot and killed his infant daughter and wounded himself, allegedly as a result of a psychotic reaction to ADDERALL. Mr Ehlis' physician had prescribed ADDERALL for the treatment of ADHD. Trial is set to commence in August 2002.Shire intends to vigorously defend such action. On October 3, 2001, a lawsuit was filed against Shire in Boone County Kentucky Circuit Court. The suit involves an automobile accident that is alleged to have been the result of a psychotic episode experienced by the driver of the car following an ingestion of ADDERALL. As a result of the accident, the driver's young son was killed. Shire has filed an answer to this lawsuit and intends to vigorously defend such action. On July 27, 2001, Shire received service of a complaint filed in state court in Texas that alleged that ADDERALL caused or contributed to a stroke. The plaintiff, an adult female aged 39, was prescribed ADDERALL as treatment for her ADHD. The complaint alleges that the plaintiff used ADDERALL during the period from January 1999 to September 1999. Also named as defendants are two doctors who were involved in diagnosing the plaintiff's ADHD and for prescribing ADDERALL for its treatment. Trial is set to commence in November 2002. Shire intends to vigorously defend such action. 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. In connection with the preliminary injunction, Barr has moved to dismiss the Complaint. A hearing on the preliminary injunction was held on June 3, 2002. The decision from the District Court is pending. (iii) AGRYLIN SUS has been named as a defendant in a lawsuit filed in a Texas state court involving AGRYLIN. The complaint was served on Shire on December 26, 2001. Shire's contract manufacturer for AGRYLIN, Mallinckrodt, Inc., is also a named defendant. The complaint alleges that the Plaintiff suffered a debilitating stroke due to the fact that the Plaintiff was allegedly unable to procure this product in some fashion. Shire has filed an answer to the complaint in which it denies the allegations in the Plaintiffs original petition. Shire intends to vigorously defend such action. (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. Further detail regarding these disputes is provided below. In November 2001, Shire and GlaxoSmithKline (GSK) signed an agreement as to the key terms of a global settlement agreement with Emory. In May 2002 the parties finalized the Settlement Agreement. Pursuant to the Settlement Agreement, Emory has granted Shire and GSK an exclusive license under Emory's patent rights for lamivudine. The Settlement Agreement provides for the resolution of the below noted worldwide patent disputes between the parties relating to lamivudine. The settlement involves an upfront payment to Emory by Shire of $2.5 million and a royalty payment from Shire of 0.5% on worldwide sales of lamivudine over an 11 year period commencing on January 1, 2001 and a licence under Shire's FTC patent rights, in consideration for the settlement of all claims against Shire and GSK relating to lamivudine. The total cost to Shire in 2001 of the settlement (including upfront payment) was $7.7 million. Emory filed oppositions to two of Shire BioChem's granted patent applications in Europe which cover oxathiolane nucleosides including lamivudine and dioxolane nucleosides, including troxacitabine, related nucleoside analogues and use of these analogues for treating viral infections. In oral hearings held in 1999, both of these oppositions were dismissed by the Opposition Division of the European Patent Office. Emory is not pursuing its appeal of the decision relating to oxathiolanes. Emory had filed an appeal against the dioxolane-related decision in the European Patent Office but this appeal has been withdrawn in July 2002. This appeal was withdrawn by Emory pursuant to a Binding Material Terms Agreement executed in July 2002 by Shire BioChem , Shire, the University of Georgia Research Foundation (Georgia) and Triangle Pharmaceuticals Inc. (Triangle). Pursuant to the Agreement Shire will grant an exclusive royalty bearing license to Emory, sub licensable to Triangle, for certain dioxolane nucleoside analogs, including diamino purine dioxolane (DAPD). 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 licences are in development. A low royalty will be payable by Shire upon commercialization of SPD 756. The Binding Material Terms Agreement provides for the resolution of worldwide patent disputes relating to the licensed patents. Emory has filed revocation actions in Australia and South Korea against Shire BioChem's granted patents covering lamivudine. Shire BioChem has aggressively defended these patents. In accordance with the Settlement Agreement, Emory has agreed to withdraw these proceedings relating to lamivudine . On July 23, 1996, Emory filed a complaint in the U.S. alleging infringement from the commercialization of EPIVIR by Shire BioChem and GSK, Shire BioChem's exclusive licensee in the U.S., of an Emory U.S. patent granted that same day. Shire BioChem considers this patent infringement suit to be without merit and has successfully challenged the validity of Emory's patent in the below noted interference proceedings. On May 19, 1998, the United States Patent and Trademark Office (USPTO) declared an interference between the Emory patent that is the subject of the above mentioned lawsuit and a pending patent application of Shire BioChem. The Board of Patent Appeals and Interferences issued a decision on December 21, 2000 invalidating Emory's patent. Emory had appealed the decision. Pursuant to the Settlement Agreement, the infringement suit and Emory's appeal from the interference decision were dismissed in June 2002. Emory has obtained a granted patent application in Europe relating to oxathiolane nucleosides, including lamivudine. Shire BioChem and GSK filed an opposition to this grant. An examined patent application filed by Emory claiming lamivudine was successfully opposed by Shire BioChem in Australia and Norway. Emory has filed an appeal from the Australian decision in the Federal Court of Australia. Shire BioChem also filed an appeal from certain portions of the decision. These proceedings will be resolved in accordance with the Settlement Agreement. An examined patent application filed by Emory claiming lamivudine was opposed by Shire BioChem and GSK in South Korea and such Emory claims to lamivudine were cancelled by the South Korean Patent Office. Emory has appealed this decision. Shire BioChem is aware that Emory has filed patent applications in other countries, which Shire BioChem believes may claim similar subject matter. All such patent applications and related disputes will be subject to the Settlement Agreement. (v) Yale On November 23, 1999, the USPTO declared an interference between Shire's hepatitis B patent for lamivudine and a patent application filed by Yale University (Yale) claiming methods of treating hepatitis B using lamivudine. The Company believes that this application is licensed to Vion Pharmaceuticals, Inc. (Vion), formerly known as OncoRx, Inc., a New Haven, Connecticut-based, U.S. company. On March 28, 2002, the Board of Patent Appeals and Interferences issued an order awarding priority to the Company's patent. Yale has not appealed from the Board's judgement and the Company is not aware of corresponding patent applications by Yale or Vion in countries other than the US. On April 14, 2000, the USPTO declared a further 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 other 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 An Annual General Meeting of Shareholders was held on June 13, 2002. The following resolutions were adopted by the margins indicated: 1. Ordinary resolution to receive and consider the report of the directors' and financial statements for the year ended December 31, 2001. For Against Open Abstentions 245,429,708 1,802,805 2,267,661 1,747,921 2. Ordinary resolution to re-elect Dr James Henry Cavanaugh as Director. For Against Open Abstentions 231,781,418 2,183,014 2,272,167 15,011,496 3. Ordinary resolution to re-elect Dr Barry John Price as Director. For Against Open Abstentions 246,587,213 296,039 2,270,467 2,094,376 4. Ordinary resolution to re-elect Mr Ronald Nordmann as Director. For Against Open Abstentions 246,614,399 298,336 2,270,467 2,064,893 5. Ordinary resolution to re-appoint Arthur Andersen as Auditors and authorize the Directors to fix their remuneration. For Against Open Abstentions 226,964,936 14,545,268 2,268,767 7,469,124 6. Ordinary resolution to receive the Report of the Remuneration Committee for the financial year ended 31 December 2001. For Against Open Abstentions 238,243,329 7,318,020 2,270,197 3,416,549 7. Ordinary resolution to authorize the directors pursuant to Section 80 of the Companies Act 1985 to exercise all or any powers of the Company to allot relevant securities up to an aggregate nominal amount equal to 331/3 per cent of the total share capital of the Company in issue on 13 February 2002 and for a period expiring five years after the date of the passing of this resolution. For Against Open Abstentions 245,831,434 1,338,023 2,270,566 1,808,072 8. Special resolution to empower the Directors pursuant to Section 95 of the Companies Act 1985 and subject to the passing of the resolution detailed in point 7 above, to allot equity securities of the Company pursuant to the authority conferred by the passing of that resolution, as if section 89(1) of the Companies Act 1985 did not apply to such allotments, provided that this power shall expire five years after the date of passing the resolution and that it is limited to certain equity securities and that it is limited 5 per cent of the issued share capital at the date of the last published accounts of the Company. For Against Open Abstentions 246,765,968 1,691,295 2,272,950 517,882 9. Ordinary resolution to authorize the directors to amend the rules of the Shire Pharmaceuticals Group plc Employee Stock Purchase Plan (ESPP) to allow all full and part-time employees to be eligible to participate in the ESPP with immediate effect. For Against Open Abstentions 228,655,295 17,344,911 2,271,267 2,976,622 10. Special resolution to generally and unconditionally authorize the directors to make market purchases of not more than 48,259,763 ordinary shares of 5p each in its share capital at not less than 5 p per share and not more than 5% above the average of the middle market quotations for the ordinary shares in the Company taken from the London Stock Exchange Daily Official List for the 5 business days immediately preceding the day on which the shares are contracted to be purchased provided that this authority shall expire at the conclusion of the next Annual General Meeting of the Company. For Against Open Abstentions 247,097,682 129,214 2,270,617 1,750,582 The following Directors continued in their term of office: Dr Francesco Bellini Dr Bernard Canavan* The Hon James Grant Mr Angus Russell Mr Rolf Stahel Dr Wilson Totten Mr Gerard Veilleux * Shire regrets to announce that Dr Canavan died on August 11, 2002. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Reports on Form 8-K During the second quarter ended June 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), date of earliest event reported May 3, 2002, with respect to determination of foreign private issuer status. Form 8-K (Item 5 - Other Events, and Item 7 - Financial Statements and Exhibits), date of earliest event reported May 7, 2002, with respect to Notice of Annual General Meeting and Form of Proxy. Form 8-K (Item 5 - Other Events), date of earliest event reported May 15, 2002, with respect to press release announcement. Form 8-K (Item 5 - Other Events, and Item 7 - Financial Statements and Exhibits), date of earliest event reported May 22, 2002, with respect to the published transcript of an investor presentation held in Philadelphia, Pennsylvania. During the period between June 30, 2002 and the filing of this form 10-Q, the following report on Form 8-K was filed by the Company with the Securities and Exchange Commission: 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: August 14, 2002 By: /s/ Angus C Russell --------------------------- Angus C Russell Group Finance Director Date: August 14, 2002 By: /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 respective knowledge and belief, the Quarterly Report on Form 10-Q for the period ended June 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: August 14, 2002 /s/ Rolf Stahel --------------------------------- Rolf Stahel Chief Executive Shire Pharmaceuticals Group plc Dated: August 14, 2002 /s/ Angus C Russell --------------------------------- Angus C. Russell Group Finance Director Shire Pharmaceuticals Group plc -----END PRIVACY-ENHANCED MESSAGE-----