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, 2001
Commission File Number: 0-29630
SHIRE PHARMACEUTICALS GROUP PLC
(Exact name of registrant as specified in its charter)
England and Wales N.A.
(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 July 31, 2001
Common Stock: Ordinary Shares 473,372,437
THE "SAFE HARBOR" STATEMENT UNDER SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934 (AMENDED) AND SECTION 27A OF THE SECURITIES ACT OF 1933 (AMENDED). The
statements in this Form 10-Q that are not historical facts are forward-looking
statements that involve risks and uncertainties, including but not limited to,
risks associated with the inherent uncertainty of pharmaceutical research,
product development and commercialization, the impact of competitive products,
patents, and other risks and uncertainties, including those detailed from time
to time in periodic reports, 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,
2001 2000
ASSETS ----------- -----------
Current assets:
Cash and cash equivalents 72,988 93,266
Marketable securities and other current asset investments 230,337 370,425
Accounts receivable, net 124,981 144,175
Inventories, net 48,104 49,612
Deferred tax asset 6,641 26,990
Prepaid expenses and other current assets 26,639 11,385
------------ ------------
Total current assets 509,690 695,853
Investments 60,307 74,314
Property, plant and equipment, net 114,495 131,224
Intangible assets, net 560,691 578,436
Net assets of business transferred under contractual arrangements 3,934 35,850
Deferred tax asset 12,860 6,543
Other assets 24,109 26,275
------------ ------------
Total assets 1,286,086 1,548,495
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current instalments of long-term debt 4,518 81,811
Accounts and notes payable 170,985 113,446
Other current liabilities 3,342 32,593
------------ ------------
Total current liabilities 178,845 227,850
Long-term debt, excluding current instalments 4,057 132,063
Other long-term liabilities 12,439 14,196
------------ ------------
Total liabilities 195,341 374,109
------------ ------------
Shareholders' equity:
Common stock, 5p par value: 800,000,000 shares authorized; and
461,391,822 shares issued and outstanding (2000: 257,088,451) 35,518 21,035
Exchangeable shares: 10,038,008 shares issued and outstanding (2000:
nil) 459,880 -
Additional paid-in capital 783,185 1,228,705
Accumulated other comprehensive losses (90,307) (60,550)
Accumulated deficit (97,531) (14,804)
------------ ------------
Total shareholders' equity 1,090,745 1,174,386
------------ ------------
Total liabilities and shareholders' equity 1,286,086 1,548,495
------------ ------------
The balance sheet as at December 31, 2000 has been restated to include the
results of BioChem Pharma Inc., the merger with whom was accounted for as a
pooling of interests in accordance with APB 16, Accounting for Business
Combinations. 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, 2001 June 30, June June
2000 30, 30,
2001 2000
------------ ------------ ------------ ------------
Product sales 171,705 121,363 325,871 237,240
Licensing and development 244 4,371 3,286 9,281
Royalties 38,429 33,653 70,690 63,663
Other revenues 471 176 746 474
------------ ------------ ------------ ------------
Total revenues 210,849 159,563 400,593 310,658
Costs and expenses:
Cost of revenues (27,709) (22,640) (56,985) (45,097)
Research and development (41,827) (39,253) (79,511) (77,482)
Selling, general and administrative
(inclusive of stock option compensation
charge of $232,000, $236,000, $2,352,000
and $23,482,000 respectively)
(76,006) (56,284) (145,791) (129,296)
Asset impairments and restructuring charges
(85,447) - (85,447) -
Merger transaction expenses (83,470) - (83,470) -
(Losses)/gains on dispositions of assets (8,098) 265 (8,098) 265
------------ ------------ ------------ ------------
Total operating expenses (322,557) (117,912) (459,302) (251,610)
------------ ------------ ------------ ------------
Operating (loss)/income (111,708) 41,651 (58,709) 59,048
Interest income 4,485 4,724 9,635 8,195
Interest expense (1,684) (3,974) (4,682) (8,388)
Other income 2,401 95,057 2,653 102,453
------------ ------------ ------------ ------------
Total other income, net 5,202 95,807 7,606 102,260
----------- ----------- ------------ ------------
(Loss)/income before income taxes (106,506) 137,458 (51,103) 161,308
Income taxes (17,685) (9,192) (31,624) (20,082)
------------ ------------ ------------ ------------
Net (loss)/income (124,191) 128,266 (82,727) 141,226
------------ ------------ ------------ ------------
Net (loss)/income per share:
Basic (25.3c) 26.6c (16.9c) 29.5c
Diluted (25.3c) 25.9c (16.9c) 28.8c
Weighted average number of shares:
Basic 489,977,184 482,234,443 489,205,296 479,509,446
Diluted 489,977,184 496,376,062 489,205,296 492,146,693
The results for the three and six months ended June 30, 2000 have been restated
to include the results of BioChem Pharma Inc., the merger with whom was
accounted for as a pooling of interests in accordance with APB 16, Accounting
for Business Combinations.
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,
2001 2000
--------------- -------------
Cash flows from operating activities:
Net (loss)/income (82,727) 141,226
Adjustments to reconcile net (loss)/income to net cash provided by
operating activities:
Depreciation and amortization 22,027 18,670
Stock option compensation 2,352 23,482
Tax benefit of stock option compensation charged directly to equity 3,307 9,829
Non cash exchange gains and losses (5,030) (1,656)
Write-down of long term investments 24,937 -
Write-down of intangible assets 20,890 -
Write-down of net assets of business transferred under contractual
arrangements 30,811 -
Gain on sale of long term investments - (100,516)
Loss/(gain) on sale of fixed assets 8,098 (265)
Decrease/(increase) in accounts receivable 17,735 (29,287)
Decrease/(increase) in inventory 1,671 (3,344)
Decrease in deferred tax asset 13,768 1,535
Increase in prepayments and other current asset investments (13,414) (6,642)
Decrease in other assets 2,228 10,435
Increase/(decrease) in accounts and notes payable 34,957 (21,596)
Decrease in other current liabilities (7,186) (29,862)
Decrease in other long term liabilities (1,757) (823)
--------------- ---------------
Net cash provided by operating activities 72,667 11,186
--------------- ---------------
Cash flows from investing activities:
Sale of marketable securities 38,754 43,970
Decrease/(increase) in cash placed on short-term deposit 98,342 (22,029)
Purchase of temporary investments - (10,954)
Maturity of long term investments - 114,006
Purchase of long term investments (11,107) (7,985)
Expenses of acquisition of subsidiaries - (657)
Purchase of intangible assets (32,035) (15,283)
Purchase of fixed assets (6,044) (15,897)
Purchase of other assets 547 (543)
Proceeds from sale of long term investments - 72,593
Proceeds from sale of fixed assets 1,200 10,265
Collection on notes receivable - 748
--------------- ---------------
Net cash provided by investing activities 89,657 168,234
--------------- ---------------
Cash flows from financing activities:
Movements on long term debt, capital leases and notes (201,876) (2,826)
Proceeds from issue of common stock, net of expenses (17) 5,101
Proceeds from exercise of options 23,201 38,178
--------------- --------------
Net cash (used in)/provided by financing activities (178,692) 40,453
--------------- --------------
Effect of foreign exchange rate changes on cash and cash equivalents (3,910) (4,416)
Cash flows used in discontinued operations - (1,728)
--------------- --------------
Net (decrease)/increase in cash and cash equivalents (20,278) 213,729
Cash and cash equivalents at beginning of period 93,266 102,503
--------------- --------------
Cash and cash equivalents at end of period 72,988 316,232
--------------- --------------
The cash flows for the six months ended June 30, 2000 have been restated to
include the cash flows of BioChem Pharma Inc., the merger with whom was
accounted for as a pooling of interests in accordance with APB 16, Accounting
for Business Combinations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS)/INCOME
(In thousands of U.S. dollars)
(Unaudited)
3 months to 3 months to 6 months to 6 months to
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------ ------------ ------------ ------------
Net (loss)/income (124,191) 128,266 (82,727) 141,226
Foreign currency translation adjustments 2,609 (22,677) (29,563) (25,788)
Unrealized holding gains/(losses) on
marketable securities and non-current
investments 14 2,618 (196) 4,047
------------ ------------ ------------ ------------
Comprehensive (loss)/income (121,568) 108,207 (112,486) 119,485
------------ ------------ ------------ ------------
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 is a fast growing international specialty pharmaceutical company with a
strategic focus on three therapeutic areas, central nervous system disorders,
oncology and antivirals, and on vaccines.
The Company has a global sales and marketing infastructure with its own direct
marketing capability in the U.S., Canada, the U.K. and the Republic of Ireland,
France, Germany, Italy and Spain. Shire also covers the other significant
pharmaceutical markets indirectly through distributors. The business is managed
within three operating segments: U.S., International and Global Research and
Development. Within these segments, revenues are derived from three sources:
sales of products by the Company's own sales and marketing operations, licensing
and development fees, and royalties.
In the U.S., the Company's principal products include Adderall for the treatment
of Attention Deficit Hyperactivity Disorder, Agrylin for the treatment of
elevated blood platelets, Pentasa for the treatment of ulcerative colitis,
Carbatrol for the treatment of epilepsy and ProAmatine for the treatment of
orthostatic hypotension. In addition, the Company receives royalties on sales of
Reminyl for the treatment of Alzheimer's disease marketed by Johnson & Johnson,
and Epivir, Combivir and Trizivir for the treatment of HIV/AIDS and Epivir-HBV
for the treatment of hepatitis B marketed by GlaxoSmithKline.
Within the International segment, the Company's principal products include:
in the U.K., the Calcichew range, used primarily as adjuncts in the
treatment of osteoporosis and Reminyl.
in Canada, 3TC, Combivir and Heptovir marketed in partnership with
GlaxoSmithKline, Amatine, Second Look, a breast cancer diagnostics product
for which the Company hopes to receive FDA approval in 2001, and Fluviral
S/F, a vaccine for the prevention of influenza.
The accompanying consolidated financial statements include the accounts of Shire
Pharmaceuticals Group plc and all its subsidiary undertakings after elimination
of intercompany accounts and transactions.
b) New Accounting Pronouncements
In July 2001, the FASB issued Statement No. 141 "Business Combinations" and
Statement No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141 requires
the use of the purchase method of accounting for all business combinations
initiated after June 30, 2001. Had the BioChem transaction been initiated after
this date, it would have been required to be accounted for under the purchase
method rather than the pooling of interests method. SFAS No. 141 requires
intangible assets to be recognized if they arise from contractual or legal
rights or are "separable", i.e., it is feasible that they may be sold,
transferred, licensed, rented, exchanged or pledged. As a result, it is likely
that more intangibles will be recognized under SFAS No. 141 than its
predecessor, APB Opinion No. 16, although in some instances previously
recognized intangibles will be subsumed into goodwill.
Under SFAS No. 142, goodwill will no longer be amortized on a straight line
basis over its estimated useful life, but will be tested for impairment on an
annual basis and whenever indicators of impairment arise. The goodwill
impairment test, which is based on fair value, is to be preformed on a reporting
unit level. A reporting unit is defined as a SFAS No. 131 operating segment or
one level lower. Goodwill will no longer be allocated to other long-lived assets
for impairment testing under SFAS No 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed of". Additionally, goodwill on equity method
investments will no longer be amortized; however, it will continue to be tested
for impairment in accordance with Accounting Principles Board Opinion No. 18,
"The Equity Method of Accounting for Investments in Common Stock". Under SFAS
No. 142 intangible assets with indefinite lives will not be amortized. Instead
they will be carried at the lower of cost or market value and tested for
impairment at least annually. All other recognized intangible assets will
continue to be amortized over their estimated useful lives.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001
although goodwill on business combinations consummated after July 1, 2001 will
not be amortized. On adoption the Company may need to record a cumulative effect
adjustment to reflect the impairment of previously recognized intangible assets.
In addition, goodwill recognized on prior business combinations will cease to be
amortized. Had the Company adopted SFAS No. 142 at January 1, 2001 the Company
would not have recorded a goodwill amortization charge of $5,373,000. The
Company has not determined the impact that these statements will have on
intangible assets or whether a cumulative effect adjustment will be required
upon adoption.
c) 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, 2000
and notes thereto. The results for the period ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001.
2. Inventory
June 30,2001 June 30,2000
$'000 $'000
-------------- --------------
Finished goods 18,775 22,648
Work-in-process 21,410 10,708
Raw materials 7,919 11,768
-------------- --------------
48,104 45,124
-------------- --------------
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, 2001 U.S. International R&D Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
Product sales 141,648 30,057 - 171,705
Licensing and development 244 - - 244
Royalties 120 38,309 - 38,429
Other revenues - 471 - 471
---------- ---------- ---------- ----------
Total revenues 142,012 68,837 - 210,849
---------- ---------- ---------- ----------
Cost of revenues 17,616 10,093 - 27,709
Research and development - - 41,827 41,827
Selling, general and administrative 50,222 25,784 - 76,006
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 67,838 212,892 41,827 322,557
---------- ---------- ---------- ----------
Operating income/(loss) 74,174 (144,055) (41,827) (111,708)
---------- ---------- ---------- ----------
Three months ended June 30, 2000 U.S. International R&D Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
Product sales 96,449 24,914 - 121,363
Licensing and development 614 3,757 - 4,371
Royalties 85 33,568 - 33,653
Other revenues 9 167 - 176
---------- ---------- ---------- ----------
Total revenues 97,157 62,406 - 159,563
---------- ---------- ---------- ----------
Cost of revenues 12,483 10,157 - 22,640
Research and development - - 39,253 39,253
Selling, general and administrative 33,466 22,818 - 56,284
(Gains)/losses on dispositions of assets (282) 17 - (265)
---------- ---------- ---------- ----------
Total operating expenses 45,667 32,992 39,253 117,912
---------- ---------- ---------- ----------
Operating income/(loss) 51,490 29,414 (39,253) 41,651
---------- ---------- ---------- ----------
Six months ended June 30, 2001 U.S. International R&D Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
Product sales 268,452 57,419 - 325,871
Licensing and development 2,329 957 - 3,286
Royalties 180 70,510 - 70,690
Other revenues - 746 - 746
---------- ---------- ---------- ----------
Total revenues 270,961 129,632 - 400,593
---------- ---------- ---------- ----------
Cost of revenues 35,492 21,493 - 56,985
Research and development - - 79,511 79,511
Selling, general and administrative 91,853 53,938 - 145,791
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 127,345 252,446 79,511 459,302
---------- ---------- ---------- ----------
Operating income/(loss) 143,616 (122,814) (79,511) (58,709)
---------- ---------- ---------- ----------
Six months ended June 30, 2000 U.S. International R&D Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
Product sales 189,550 47,690 - 237,240
Licensing and development 1,990 7,291 - 9,281
Royalties 129 63,534 - 63,663
Other revenues 13 461 - 474
---------- ---------- ---------- ----------
Total revenues 191,682 118,976 - 310,658
---------- ---------- ---------- ----------
Cost of revenues 25,437 19,660 - 45,097
Research and development - - 77,482 77,482
Selling, general and administrative 60,018 69,278 - 129,296
(Gains)/losses on dispositions of assets (282) 17 - (265)
---------- ---------- ---------- ----------
Total operating expenses 85,173 88,955 77,482 251,610
---------- ---------- ---------- ----------
Operating income/(loss) 106,509 30,021 (77,482) 59,048
---------- ---------- ---------- ----------
4. Net (loss)/income per share
Basic net (loss)/income per share is based upon the net (loss)/income available
to common stockholders divided by the weighted-average number of common shares
outstanding during the period. Diluted net (loss)/income per share is based upon
net (loss)/income available to common stockholders divided by the
weighted-average number of common shares outstanding during the period and
adjusted for the effect of all dilutive potential common shares that were
outstanding during the period.
The following table sets forth the computation of basic and diluted net
(loss)/income per share:
3 months to 3 months to 6 months to 6 months to
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
$'000 $'000 $'000 $'000
---------------- ---------------- ---------------- ----------------
Numerator for basic net (loss)/income per share (124,191) 128,266 (82,727) 141,226
Interest charged on convertible debt, net of tax - 102 - 438
---------------- ---------------- ---------------- ----------------
Numerator for diluted net (loss)/income per share (124,191) 128,368 (82,727) 141,664
---------------- ---------------- ---------------- ----------------
Weighted average number of shares: No. of shares No. of shares No. of shares No. of shares
---------------- ---------------- ---------------- ----------------
Basic - weighted average number of shares 489,977,184 482,234,443 489,205,296 479,509,446
Effect of dilutive stock options - 12,511,100 - 11,006,728
Convertible debt - 1,630,519 - 1,630,519
---------------- ---------------- ---------------- ----------------
Diluted - weighted average number of shares 489,977,184 496,376,062 489,205,296 492,146,693
---------------- ---------------- ---------------- ----------------
Basic net (loss)/income per share (25.3c) 26.6c (16.9c) 29.5c
---------------- ---------------- ---------------- ----------------
Diluted net (loss)/income per share (25.3c) 25.9c (16.9c) 28.8c
---------------- ---------------- ---------------- ----------------
The calculation of the diluted weighted average number of shares for the three
and six months ended June 30, 2001 excludes the effects of dilutive stock
options and convertible debt securities issued by the Company because these have
an antidilutive effect on the calculation in a loss making period.
5. Restructuring
In May 2001, the Company completed a merger with BioChem Pharma Inc.
("BioChem"), an international specialty pharmaceutical company based in
Montreal, Canada. As a result of the merger, the Company recorded pre tax
charges in the second quarter of 2001 totalling $177.0 million, comprising asset
impairment and restructuring costs ($85.4 million), merger related transaction
expenses ($83.5 million) and a loss from the disposal of a duplicated facility
in Toronto, Canada ($8.1 million).
The restructuring costs included an impairment charge of $20.9 million to adjust
intangible asset values, primarily trademark and patent costs but also an
element of product rights, to their estimated fair value. These charges are
consistent with the Company's accounting policy to review periodically the
carrying value of intangible assets and evaluate whether there has been any
impairment in the carrying value of those intangibles as compared with estimated
undiscounted future cash flows relating to those intangibles. Other asset
impairment charges included the write down of long term unquoted investments
($24.9 million) and a write down of $30.8 million to a debenture held by
BioChem, which was received on divestiture of its diagnostics subsidiary. These
charges are consistent with the Company's policy to provide for other than
temporary impairments in investment by reference to the fair value of the
investment using established financial methodologies. There was also a total of
$8.8 million recorded in respect of employee related costs.
The employee terminations related to the closure of the Toronto facility and the
elimination of duplicate positions across the combined organization. Shire's
existing Canadian based sales and marketing operations in Toronto have been
combined with those of BioChem in Laval. A total of 57 employees were identified
to be terminated. As of June 30, 2001 virtually all of the planned terminations
were completed.
6. Debt
During the six months ended June 30, 2001, the Company made repayments of debt
totaling $201.9 million. These repayments were in respect of a $125.0 million
term loan owing to Credit Suisse First Boston and $76.9 million repaid to Glaxo
SmithKline.
7. Consolidated statement of changes in shareholders' equity
Accumu-
Exchange- lated
Common Exchange- able other Total
Common Stock able shares Additional Accumu- compre- sharehold-
Stock No. shares No. paid-in lated hensive er's
Amount Shares Amount shares capital deficit losses equity
$'000 000's $'000 $'000 $'000 $'000 $'000 $'000
----------- ----------- ------------------------------------------------------------------------
As at January 1,
2001 21,035 257,088 - - 1,228,705 (14,804) (60,550) 1,174,386
Net loss - - - - - (82,727) - (82,727)
Foreign currency
translation - - - - - - (29,561) (29,561)
Unrealized holding
loss on non-current
investments - - - - - - (196) (196)
Issue of shares for
acquisitions 12,735 179,449 792,220 17,292 (804,955) - - -
Exchange of
exchangeable shares 1,529 21,762 (332,340) (7,254) 330,811 - - -
Options exercised 219 3,093 - - 22,982 - - 23,201
Issuance costs - - - - (17) - - (17)
Stock option
compensation - - - - 2,352 - - 2,352
Tax benefit
associated with
exercise of stock
options - - - - 3,307 - - 3,307
----------- ----------- ------------------------------------------------------------------------
As at June 30, 2001 35,518 461,392 459,880 10,038 783,185 (97,531) (90,307) 1,090,745
----------- ----------- ------------------------------------------------------------------------
Each exchangeable share is exchangeable into 3 ordinary shares.
8. Contingent liabilities
(i) Phentermine
Until April 1998, Shire Richwood Inc. ("SRI") distributed products containing
phentermine, a prescription drug approved in the U.S. as a single agent for
short term use in obesity. Contrary to the approved labeling of these products,
physicians in the U.S. co-prescribed phentermine with fenfluramine or
dexfenfluramine for management of obesity. This combination was popularly known
as the "fen/phen" diet. In mid 1997, following concerns raised about cardiac
valvular side effects alleged to be associated with this diet regime, the
fenfluramine and dexfenfluramine elements of the "fen/phen" diet were withdrawn
from the U.S. market. Although SRI has ceased to distribute phentermine, the
drug remains both approved and available in the U.S. SRI and a number of other
pharmaceutical companies are being sued for damages for personal injury and
medical monitoring arising from phentermine used either alone or in combination.
As of June 30, 2001, SRI was named as a defendant in approximately 3,781
lawsuits and had been dismissed from approximately 3,463 of these cases. There
were approximately 150 additional cases pending dismissal as of June 30, 2001.
In only 42 cases in which SRI has been named as a defendant, has it been alleged
in the complaint or subsequent discovery that the plaintiff had used SRI's
particular product. Although there have been reports of substantial jury awards
and settlements in respect of fenfluramine and/or dexfenfluramine, to date Shire
is not aware of any jury awards made against, or any settlements made by, any
phentermine defendant. Shire denies liability on a number of grounds including
lack of scientific evidence that phentermine, properly prescribed, causes the
alleged side effects and that SRI did not promote phentermine for long term
combined use as the "fen/phen" diet.
Accordingly, Shire intends to defend vigorously any and all claims made against
the Company in respect of phentermine and believes that a liability is neither
probable nor quantifiable at this stage of litigation.
On August 31, 2000 Shire entered into an agreement (the "Termination Agreement")
with the former shareholders of SRI, pursuant to which the ordinary shares
placed in escrow at the time of the purchase of SRI by Shire were released, and
the escrow agreement and the escrow fund were terminated. The escrow agreement
with the SRI shareholders was initially established by Shire in 1997 in
anticipation of possible phentermine related claims against the Company. Under
the terms of the Termination Agreement, monies in the approximate amount of $7
million were received by Shire, and the escrow fund was terminated. The
remaining shares were distributed to the former SRI shareholders.
Legal expenses have been paid by Eon Labs Manufacturing Inc. ("Eon"), the
suppliers to SRI or Eon's insurance carriers but such insurance is now
exhausted. Eon has agreed to defend and indemnify SRI in this litigation
pursuant to an agreement dated November 30, 2000 between Eon and SRI.
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) Emory
Emory University filed oppositions to two of 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 University has filed an
appeal against the dioxolane-related decision of the Opposition Division. Emory
University is not pursuing its appeal of the decision relating to oxathiolanes.
Emory University has not to date filed revocation actions with respect to any
BioChem patents in issue in individual European countries.
In Japan, Emory University filed an opposition to BioChem's granted patent which
covers lamivudine, related analogues and use of the analogues for treating viral
infections. The Trial Board of the Japanese Patent Office dismissed Emory
University's opposition to BioChem's patent covering lamivudine. Emory
University has not to date filed a revocation action against this patent. Emory
University has filed revocation actions in Australia and South Korea against
BioChem's granted patents covering lamivudine. The Company is aggressively
defending these patents.
On July 23, 1996, Emory University filed a complaint in the U.S. alleging
infringement from the commercialisation of Epivir by BioChem and
GlaxoSmithKline, BioChem's exclusive licensee in the U.S., of an Emory
University U.S. patent granted that same day. The Company considers this patent
infringement suit to be without merit and has successfully challenged the
validity of Emory University's patent.
On May 19, 1998, the United States Patent and Trademark Office (the "USPTO")
declared an interference between the Emory University patent that is the subject
of a lawsuit and a pending patent application of BioChem. The USPTO accorded
BioChem the earlier priority date and then accorded BioChem senior party status
in the interference. BioChem has vigorously challenged the Emory University
patent in the interference, through to a final hearing on November 10, 1999. The
Board of Patent Appeals and Interferences issued a decision on December 21, 2000
invalidating Emory's patent. Emory University has appealed the decision. There
can be no assurance that Emory's patent will not be reinstated.
Emory University has obtained a granted patent application in Europe relating to
oxathiolane nucleosides, including lamivudine. BioChem and GlaxoSmithKline filed
an opposition to this grant and are vigorously opposing the grant. An examined
patent application, filed by Emory University claiming lamivudine, was
successfully opposed by BioChem in Australia and Norway. Emory University has
filed an appeal from that decision in the Federal Court of Australia. BioChem
also filed an appeal from certain portions of the decision. An examined patent
application filed by Emory University claiming lamivudine was also opposed by
BioChem in Japan. The opposition was dismissed in April 1999 because it was
improperly filed by a representative who had previously represented Emory.
Notwithstanding the dismissal, the Japanese Patent Office issued an ex-officio
action rejecting all of Emory University's claims. An examined patent
application filed by Emory claiming lamivudine has also been opposed by BioChem
and GlaxoSmithKline in South Korea. The Company
is aware that Emory University has filed patent applications in other countries,
which it believes may claim similar subject matter. The Company intends to
challenge vigorously such patent applications.
(iii) Yale
On November 23, 1999, the USPTO declared an interference between BioChem'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
company. The Company believes that its patent is valid and intends to vigorously
defend the patent. The Company is not aware of corresponding patent applications
by Yale University or Vion in countries other than the U.S. On April 14, 2000,
the USPTO declared a further interference between BioChem's hepatitis B patent
for lamivudine and a patent application by GlaxoSmithKline claiming methods of
treating hepatitis B using lamivudine.
(iv) 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. Shire filed its answer to the complaint on November 24, 2000
and discovery related to the litigation is ongoing.
(v) Interests in companies and partnerships
BioChem has undertaken to subscribe to an interest in companies and partnerships
for amounts totaling $51,624,000. As at June 30, 2001 an amount of $31,823,000
(December 31, 2000: $25,709,000) has been subscribed. In addition, BioChem has
undertaken to subscribe to additional amounts and pay royalties on certain
future sales upon realization of certain conditions.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The results for the three months and six months ended June 30, 2000 have been
restated from prior periods to reflect the merger of Shire and BioChem, which
became effective on May 11, 2001, as if the merger had occurred at the beginning
of the periods described.
Results of operations for the three months ended June 30, 2001, as compared with
those for the three months ended June 30, 2000
Overview of financial results
Total revenues for the three months ended June 30, 2001 increased by 32 per cent
to $210.8 million as compared to the three months ended June 30, 2000, primarily
the result of a $50.3 million increase in product sales. After one time merger
related expenses and restructuring charges of $177.0 million, the Company
recorded a second quarter net loss of $124.2 million (2000: net income $128.3
million).
Sales and marketing
Product sales of $171.7 million represented 81 per cent of total revenues, an
increase of 41 per cent over second quarter 2000 product sales of $121.4
million. Product sales in the U.S. continue to represent a significant
percentage of our worldwide sales, 82 per cent in the three months ended June
30, 2001 (2000: 79 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 operating segment:
3 months to 3 months to
Product sales by segment June 30, June 30,
2001 2000
$'000 $'000 % change
United States 141,648 96,449 46.9
International 30,057 24,914 20.6
------------ ------------ ------------
Total product sales 171,705 121,363 41.5
------------ ------------ ------------
Second quarter sales of Adderall, marketed in the U.S. for the treatment of
Attention Deficit Hyperactivity Disorder (ADHD), were $69.4 million,
representing growth of 56 per cent over the second quarter of 2000. Adderall had
a 32.7 per cent share of the prescription market for ADHD in the U.S. in June
2001 compared to 32.1 per cent in June 2000. Adderall continues to be the brand
leader in the U.S. market for ADHD.
Sales of Agrylin, the only U.S. product licensed for the treatment of essential
thrombocythemia were $25.8 million, a 39 per cent increase over second quarter
2000 sales of $18.5 million. Shire achieved a prescription share of 21.3 per
cent of the total U.S. Agrylin market, including Hydrea and generic hydroxyurea,
in June 2001 compared to 16.7 per cent in June 2000.
Sales of Pentasa, licensed for the treatment of ulcerative colitis, at $19.1
million, were 45 per cent higher than the comparable period last year. Pentasa
had a 17.8 per cent share of the oral mesalamine/obsalazine market in June 2001
compared to 18.0 per cent in June 2000.
Carbatrol, one of the most widely used first line treatments for epilepsy,
recorded sales growth of 87 per cent from sales of $5.3 million in the three
months ended June 30, 2000 to $9.9 million in the three months ended June 30,
2001. This translates to 33.8 per cent of the U.S. extended release
carbamazepine prescription market in June 2001, compared to 28.1 per cent in
June 2000.
Licensing
Licensing and development fees in the three months ended June 30, 2001 fell by
94 per cent to $0.2 million compared to $4.4 million in the three months ended
June 30, 2000. The decrease is mainly due to the reduction in recovery of
development costs for Reminyl, an Alzheimer's drug, launched by Janssen ("J&J")
in the US market in May 2001.
Royalties
Royalties increased by $4.8 million, up 14 per cent to $38.4 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. Additionally, the Company receives royalties from J&J for
Reminyl.
Cost of sales and operating expenses
Gross margin on product sales increased from 81 per cent for the three months
ended June 30, 2000 to 84 per cent for the three months ended June 30, 2001.
This is a reflection of the product mix as the higher margin products, Adderall
and Agrylin, represented approximately 55 per cent of total product sales in the
three months ended June 30, 2001 compared to 52 per cent in the three months
ended June 30, 2000. Pre announced pricing changes in respect of Adderall have
also benefited the gross margin in three months ended June 30, 2001.
R&D expenditure increased 7 per cent to $41.8 million for the three months ended
June 30, 2001 (Q2 2000: $39.3 million). R&D expenditure in second quarter 2001
represented 20 per cent of revenues compared to 25 per cent in second quarter
2000 and 23 per cent for full year 2000.
Selling, general and administrative expenses, excluding the effects of a stock
option compensation charge of $0.2 million (Q2 2000: $0.2 million) and
depreciation and amortization of $11.2 million (Q2 2000: $9.4 million),
increased by 38 per cent to $64.6 million for the three months ended June 30,
2001 (Q2 2000: $46.6 million). As a percentage of product sales, selling,
general and administrative costs represented 38 per cent for the second quarter
2001, consistent with second quarter 2000.
The 19 per cent increase in depreciation and amortization for the three months
ended June 30, 2001 is attributable to the purchase of several new products in
Europe since June last year.
Restructuring
In May 2001, the Company completed a merger with BioChem, an international
specialty pharmaceutical company based in Montreal, Canada. As a result of the
merger, the Company recorded pre-tax charges in the second quarter of 2001
totalling $177.0 million, comprising asset impairment and restructuring costs
($85.4 million), merger related transaction expenses ($83.5 million), and a loss
from the disposal of a duplicated facility in Toronto, Canada ($8.1 million).
The restructuring costs included an impairment charge of $20.9 million to adjust
intangible asset values, primarily trademark and patent costs but also an
element of product rights, to their estimated fair value. These charges are
consistent with the Company's accounting policy to review periodically the
carrying value of intangible assets and evaluate whether there has been any
impairment in the carrying value of those intangibles as compared with estimated
undiscounted future cash flows relating to those intangibles. Other asset
impairment charges included the write down of long term unquoted investments
($24.9 million) and a write down of $30.8 million to a debenture held by
BioChem, which was received on divestiture of its diagnostics subsidiary. These
charges are consistent with the Company's policy to provide for other than
temporary impairments in investment by reference to the fair value of the
investment using established financial methodologies. There was also a total of
$8.8 million recorded in respect of employee related costs.
The employee terminations related to the closure of the Toronto facility and the
elimination of duplicate positions across the combined organization. Shire's
existing Canadian based sales and marketing operations in Toronto have been
combined with those of BioChem in Laval. A total of 57 employees were identified
to be terminated. As of June 30, 2001 virtually all of the planned terminations
were completed.
The Company anticipates realizing annual savings resulting from post merger
operating synergies in the range of $10 - 15 million per annum.
Income taxes
For the three months ended June 30, 2001 income taxes increased $8.5 million to
$17.7 million from $9.2 million for the three months ended June 30, 2000. The
Company's effective tax rate before the stock compensation charge and
exceptional items was 25 per cent for the three months ended June 30, 2001 (Q2
2000: 22 per cent). The Company has recorded net deferred tax assets of $19.5
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, 2001, as compared with
those for the six months ended June 30, 2000
Overview of financial results
Total revenues for the six months ended June 30, 2001 were $400.6 million, an
increase of $89.9 million or 29 per cent over the six months ended June 30,
2000. After one time merger related expenses and restructuring charges of $177.0
million, the Company recorded a net loss of $82.7 million (2000: $141.2 million
net income). Net income for the six months to June 30, 2001 includes an APB 25
charge of $2.4 million compared to $23.5 million for the six months ended June
30, 2000.
Sales and marketing
Product sales were $325.9 million in the six months ended June 30, 2001 (2000:
$237.2 million), representing an increase of 37 per cent. Of particular note,
Adderall sales at $139.6 million were 41 per cent higher than in the first half
of 2000.
Other products contributing to the overall 37 per cent increase were Agrylin
(increase of $13.4 million or 45 per cent), Carbatrol (increase of $8.6 million
or 79 per cent) and ProAmatine (increase of $8.6 million or 92 per cent).
U.S. product sales for the six months ended June 30, 2001 represented 82 per
cent of the Company's total sales revenues (2000: 80 per cent).
Product sales by segment 6 months to 6 months to
June 30, June 30, % change
2001 2000
$'000 $'000
United States 268,452 189,550 41.6
International 57,419 47,690 20.4
------------ ------------ ------------
Total product sales 325,871 237,240 37.4
------------ ------------ ------------
Licensing
Licensing and development fees for the six months ended June 30, 2001 decreased
by 65 per cent to $3.3 million compared to $9.3 million for the six months ended
June 30, 2000.
Royalties increased by $7.0 million to $70.7 million for the six months ended
June 30, 2001.
Cost of sales and operating expenses
Gross margin on product sales increased to 83 per cent for the six months ended
June 30, 2001 compared to 81 per cent for the six months ended June 30, 2000.
R&D expenditure increased by 3 per cent to $79.5 million for the six months
ended June 30, 2001 (2000: $77.5 million). R&D expenditure for the six months
ended June 30, 2001 represents 20 per cent of revenues compared to 25 per cent
for the six months ended June 30, 2000.
Excluding the effects of the APB25 charge, depreciation and amortization
charges, the underlying selling, general and administrative expenses increased
by 39 per cent to $121.4 million for the six months ended June 30, 2001 (2000:
$87.1 million) in line with the expansion of the business.
Depreciation and amortization increased by 18 per cent to $22.0 million (2000:
$18.7 million). As noted above, this increase reflects the amortization charge
on those intangible assets acquired since the second quarter of 2000.
Income taxes
For the six months ended June 30, 2001 income taxes were $31.6 million,
representing an effective rate of tax on income pre APB 25 charge of 25 per cent
(2000: 24 per cent).
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, 2001, the Company had net cash funds available as follows:
June 30, December 31,
2001 2000
$'000 $'000
-------------- --------------
Cash and cash equivalents 72,988 93,266
Marketable securities and other current
asset investments 230,337 370,425
Debt (8,575) (213,874)
-------------- --------------
Net cash 294,750 249,817
-------------- --------------
Net cash provided by operating activities for the six months ended June 30, 2001
was $72.7 million compared to $11.2 million for the six months ended June 30,
2000.
Investing activities provided $89.7 million for the six months ended June 30,
2001 (2000: $168.2 million). A reduction in cash placed on short term deposit
and redemption of marketable securities of $137.1 million was offset by net
capital expenditure on long term investments, intangible assets and fixed assets
of $47.4 million.
Financing activities utilized $178.7 million for the six months ended June 30,
2001 (2000: generation of $40.5 million). Repayments of long term debt totalling
$201.9 million were offset by $23.2 million received from exercises of employee
stock options. The repayments of debt were 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 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 $31.5 million for new products, including
Monocid and Indurgan marketed by the Company's Spanish and Italian operations.
ITEM 3. Qualitative and Quantitative Disclosures about Market Risk
Shire's principal treasury operations are managed by the Company's treasury
function based in the U.K. in accordance with the Company's treasury policies
and procedures which are approved by Shire's Board of Directors. As a matter of
policy, Shire does not undertake speculative transactions that would increase
its currency or interest rate exposure.
The Company is subject to market risk exposure in the following areas:
Interest rate market risk
The Company has cash and cash equivalents on which interest is earned at
variable rates.
Since December 31, 2000 the Company has repaid in full a long term loan
outstanding to Credit Suisse First Boston and amounts due to Glaxo SmithKline
under a promissory note. Thus, as at June 30, 2001 the Company's exposure to
interest rate market risk on debts outstanding is much reduced.
The Company has short term and long term debt liabilities denominated in foreign
currencies. As at June 30, 2001, a total of $5.6 million was outstanding
(December 31, 2000: $6.0 million). The underlying currency was Canadian dollars.
Foreign exchange market risk
The Company and a number of subsidiary operations are located outside the U.S.
As such, the consolidated financial results are subject to fluctuations in
exchange rates, particularly between the British pound, Canadian dollar and the
U.S. dollar. The financial statements of foreign entities are translated using
the accounting policies described in Note 1 of the Notes to the consolidated
financial statements filed on Form 10K. The exposure to foreign exchange market
risk is managed by the Company's treasury function, using forecasts provided by
the operating units.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(i) Phentermine
Until April 1998, Shire Richwood Inc. ("SRI") distributed products containing
phentermine, a prescription drug approved in the U.S. as a single agent for
short term use in obesity. Contrary to the approved labeling of these products,
physicians in the U.S. co-prescribed phentermine with fenfluramine or
dexfenfluramine for management of obesity. This combination was popularly known
as the "fen/phen" diet. In mid 1997, following concerns raised about cardiac
valvular side effects alleged to be associated with this diet regime, the
fenfluramine and dexfenfluramine elements of the "fen/phen" diet were withdrawn
from the U.S. market. Although SRI has ceased to distribute phentermine, the
drug remains both approved and available in the U.S. SRI and a number of other
pharmaceutical companies are being sued for damages for personal injury and
medical monitoring arising from phentermine used either alone or in combination.
As of June 30, 2001, SRI was named as a defendant in approximately 3,781
lawsuits and had been dismissed from approximately 3,463 of these cases. There
were approximately 150 additional cases pending dismissal as of June 30, 2001.
In only 42 cases in which SRI has been named as a defendant, has it been alleged
in the complaint or subsequent discovery that the plaintiff had used SRI's
particular product. Although there have been reports of substantial jury awards
and settlements in respect of fenfluramine and/or dexfenfluramine, to date Shire
is not aware of any jury awards made against, or any settlements made by, any
phentermine defendant. Shire denies liability on a number of grounds including
lack of scientific evidence that phentermine, properly prescribed, causes the
alleged side effects and that SRI did not promote phentermine for long term
combined use as the "fen/phen" diet. Accordingly, Shire intends to defend
vigorously any and all claims made against the Company in respect of phentermine
and believes that a liability is neither probable nor quantifiable at this stage
of litigation.
On August 31, 2000 Shire entered into an agreement (the "Termination Agreement")
with the former shareholders of SRI, pursuant to which the ordinary shares
placed in escrow at the time of the purchase of SRI by Shire were released, and
the escrow agreement and the escrow fund were terminated. The escrow agreement
with the SRI shareholders was initially established by Shire in 1997 in
anticipation of possible phentermine related claims against the Company. Under
the terms of the Termination Agreement, monies in the approximate amount of $7
million were received by Shire, and the escrow fund was terminated. The
remaining shares were distributed to the former SRI shareholders.
Legal expenses have been paid by Eon Labs Manufacturing Inc. ("Eon"), the
suppliers to SRI or Eon's insurance carriers but such insurance is now
exhausted. Eon has agreed to defend and indemnify SRI in this litigation
pursuant to an agreement dated November 30, 2000 between Eon and SRI.
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) Emory
Emory University filed oppositions to two of 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 University has filed an
appeal against the dioxolane-related decision of the Opposition Division. Emory
University is not pursuing its appeal of the decision relating to oxathiolanes.
Emory University has not to date filed revocation actions with respect to any
BioChem patents in issue in individual European countries.
In Japan, Emory University filed an opposition to BioChem's granted patent which
covers lamivudine, related analogues and use of the analogues for treating viral
infections. The Trial Board of the Japanese Patent Office dismissed Emory
University's opposition to BioChem's patent covering lamivudine. Emory
University has not to date filed a revocation action against this patent. Emory
University has filed revocation actions in Australia and South Korea against
BioChem's granted patents covering lamivudine. The Company is aggressively
defending these patents.
On July 23, 1996, Emory University filed a complaint in the U.S. alleging
infringement from the commercialisation of Epivir by BioChem and
GlaxoSmithKline, BioChem's exclusive licensee in the U.S., of an Emory
University U.S. patent granted that same day. The Company considers this patent
infringement suit to be without merit and has successfully challenged the
validity of Emory University's patent.
On May 19, 1998, the United States Patent and Trademark Office (the "USPTO")
declared an interference between the Emory University patent that is the subject
of a lawsuit and a pending patent application of BioChem. The USPTO accorded
BioChem the earlier priority date and then accorded BioChem senior party status
in the interference. BioChem has vigorously challenged the Emory University
patent in the interference, through to a final hearing on November 10, 1999. The
Board of Patent Appeals and Interferences issued a decision on December 21, 2000
invalidating Emory's patent. Emory University has appealed the decision. There
can be no assurance that Emory's patent will not be reinstated.
Emory University has obtained a granted patent application in Europe relating to
oxathiolane nucleosides, including lamivudine. BioChem and GlaxoSmithKline filed
an opposition to this grant and are vigorously opposing the grant. An examined
patent application, filed by Emory University claiming lamivudine, was
successfully opposed by BioChem in Australia and Norway. Emory University has
filed an appeal from that decision in the Federal Court of Australia. BioChem
also filed an appeal from certain portions of the decision. An examined patent
application filed by Emory University claiming lamivudine was also opposed by
BioChem in Japan. The opposition was dismissed in April 1999 because it was
improperly filed by a representative who had previously represented Emory.
Notwithstanding the dismissal, the Japanese Patent Office issued an ex-officio
action rejecting all of Emory University's claims. An examined patent
application filed by Emory claiming lamivudine has also been opposed by BioChem
and GlaxoSmithKline in South Korea. The Company is aware that Emory University
has filed patent applications in other countries, which it believes may claim
similar subject matter. The Company intends to challenge vigorously such patent
applications.
(iii) Yale
On November 23, 1999, the USPTO declared an interference between BioChem'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
company. The Company believes that its patent is valid and intends to vigorously
defend the patent. The Company is not aware of corresponding patent applications
by Yale University or Vion in countries other than the U.S. On April 14, 2000,
the USPTO declared a further interference between BioChem's hepatitis B patent
for lamivudine and a patent application by GlaxoSmithKline claiming methods of
treating hepatitis B using lamivudine.
(iv) 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. Shire filed its answer to the complaint on November 24, 2000
and discovery related to the litigation is ongoing.
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 5, 2001. The
following resolutions were adopted by the margins indicated:
Ordinary resolution to receive and consider the Directors' Report and Accounts
for the year ended December 31, 2000.
For Against Open Abstentions
129,067,094 57,781 1,835,007 1,622,643
Ordinary resolution to re-appoint Arthur Andersen as Auditors and authorize the
Directors to fix their remuneration.
For Against Open Abstentions
125,947,052 3,361,017 1,836,479 1,437,977
Ordinary resolution to re-elect Mr Angus Russell as Director.
For Against Open Abstentions
128,804,462 330,209 1,840,232 1,607,622
Ordinary resolution to re-elect Dr Wilson Totten as Director.
For Against Open Abstentions
128,922,428 212,048 1,840,442 1,607,607
Ordinary resolution to re-elect Dr Bernard Canavan as Director.
For Against Open Abstentions
125,153,717 3,450,868 1,840,442 2,137,498
Ordinary resolution, conditional on completion of the Company's merger with
BioChem Pharma Inc., to elect Dr Francesco Bellini as Director.
For Against Open Abstentions
128,944,337 176,765 1,840,442 1,620,981
Ordinary resolution, conditional on completion of the Company's merger with
BioChem Pharma Inc., to elect the Hon James Andrews Grant as Director.
For Against Open Abstentions
128,974,746 146,909 1,840,442 1,620,428
Ordinary resolution, conditional on completion of the Company's merger with
BioChem Pharma Inc., to elect Mr Gerard Veilleux as Director.
For Against Open Abstentions
128,971,382 149,295 1,840,442 1,621,406
Special resolution that options may be granted under the Shire Pharmaceuticals
Group plc 2000 Executive Share Option Scheme subject to satisfaction of
performance conditions prior to and not subsequent to grant as more particularly
described in the Chairman's letter to shareholders dated April 27, 2001.
For Against Open Abstentions
114,896,437 10,492,038 1,849,642 5,344,408
ITEM 5. OTHER INFORMATION
Adderall XR
On August 3, 2001, Shire announced that Adderall XR, a once daily treatment
under review for Attention Deficit Hyperactivity Disorder ("ADHD"), had received
an `approvable letter' from the U.S. Food and Drug Administration ("FDA"). An
approvable letter is an official communication from the FDA indicating that the
agency is prepared to approve the new drug application upon the finalization of
the labelling and satisfaction of any outstanding issues specified in that
letter. The New Drug Application ("NDA"), which was submitted to the FDA on
October 3, 2000, was based on studies involving over 600 patients and was one of
the largest ever medication trials in ADHD research. The positive results from
these studies have been presented at various scientific meetings throughout the
past year. Adderall XR is a once daily formulation containing the same active
ingredients as Adderall (mixed salts of a single entity amphetamine product),
which was developed by Shire's drug delivery division, Shire Laboratories Inc.
using the Microtrol oral controlled release technology.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
During the second quarter ended June 30, 2001, 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 April 26,
2001, with respect to press release announcement of first quarter results.
Form 8-K (Item 7 - Financial Statements and Exhibits), date of earliest
event reported May 9, 2001, with respect to presentation relating to first
quarter results and BioChem Pharma Inc. merger.
Form 8-K (Item 7 - Financial Statements and Exhibits), date of earliest
event reported May 15, 2001, with respect to description of Shire share
capital.
During the period between June 30, 2001 and the filing of this Form 10-Q,
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 July 17,
2001, with respect to press release of historical financial data in US GAAP
format.
Form 8-K as amended (Item 5 - Other Events, and Item 7 - Financial
Statements and Exhibits), date of earliest event reported July 23, 2001,
with respect to press release announcement of second quarter results.
Form 8-K (Item 7 - Financial Statements and Exhibits), date of earliest
event reported July 23, 2001, with respect to presentation relating to
second quarter results.
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 13, 2001 By: Angus C Russell
Group Finance Director
Date: August 13, 2001 By: Rolf Stahel
Chief Executive