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 March 31, 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 May 14, 2002
Common Stock: Ordinary Shares 482,732,570
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THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Statements included herein that are not historical facts, are forward looking
statements. The forward looking statements involve a number of risks and
uncertainties and are subject to change at any time. In the event such risks or
uncertainties materialize, 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, the impact of competitive products, patents, government
regulation and approval, 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.
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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)
March 31, December 31,
2002 2001
ASSETS ----------- -----------
Current assets:
Cash and cash equivalents 706,457 118,040
Marketable securities and other current asset investments 237,113 723,911
Accounts receivable, net 140,400 193,913
Inventories, net 55,852 46,690
Deferred tax asset 25,515 19,430
Prepaid expenses and other current assets 26,194 38,571
------------ ------------
Total current assets 1,191,531 1,140,555
Investments 68,031 68,743
Property, plant and equipment, net 111,223 113,347
Intangible assets, net 539,187 549,044
Deferred tax asset 9,693 12,874
Other assets 27,434 26,168
------------ ------------
Total assets 1,947,099 1,910,731
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current instalments of long-term debt 4,480 4,325
Accounts payable and accrued expenses 167,062 167,152
Unearned income - 17,409
Other current liabilities 44,632 42,730
------------ ------------
Total current liabilities 216,174 231,616
Long-term debt, excluding current instalments 402,487 402,481
Other long-term liabilities 13,544 13,645
------------ ------------
Total liabilities 632,205 647,742
------------ ------------
Shareholders' equity:
Common stock, 5p par value: 800,000,000 shares authorized; and
482,614,881 shares issued and outstanding (2001: 481,817,487) 39,898 39,861
Exchangeable shares: 5,882,978 shares issued and outstanding (2001:
5,978,902) 272,946 277,386
Additional paid-in capital 1,020,266 1,014,796
Accumulated other comprehensive losses (98,973) (93,009)
Accumulated surplus 80,757 23,955
------------ ------------
Total shareholders' equity 1,314,894 1,262,989
------------ ------------
Total liabilities and shareholders' equity 1,947,099 1,910,731
------------ ------------
The accompanying notes are an integral part of these financial statements.
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SHIRE PHARMACEUTICALS GROUP PLC
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except share and per share data)
(Unaudited)
3 months ended March 31, 2002 2001
------------ ------------
Product sales 202,718 151,514
Licensing and development 682 3,042
Royalties 39,576 32,891
Other revenues 217 275
------------ ------------
Total revenues 243,193 187,722
Costs and expenses:
Cost of revenues 26,511 28,385
Research and development 49,729 37,684
Selling, general and administrative (inclusive of stock option
compensation credit of $302,000 and charge of $2,120,000 for
2002 and 2001 respectively) 94,077 69,161
------------ ------------
Total operating expenses 170,317 135,230
------------ ------------
Operating income 72,876 52,492
Interest income 4,731 5,140
Interest expense (1,977) (2,998)
Other income, net 1,885 770
------------ ------------
Total other income, net 4,639 2,912
----------- -----------
Income before income taxes 77,515 55,404
Income taxes (20,713) (13,939)
------------ ------------
Net income 56,802 41,465
------------ ------------
Net income per share:
Basic 11.4c 8.5c
Diluted 11.1c 8.3c
Weighted average number of shares:
Basic 499,926,390 488,448,379
Diluted 524,865,259 500,699,108
The results for the three months ended March 31, 2001 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.
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SHIRE PHARMACEUTICALS GROUP PLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)
3 months ended March 31, 2002 2001
--------------- ---------------
Cash flows from operating activities:
Net income 56,802 41,465
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 10,173 10,823
Stock option compensation (302) 2,120
Tax benefit of stock option compensation charged directly to equity 590 3,090
Non cash exchange gains and losses (793) (10,424)
Loss on sale of fixed assets - 607
Other movements in long-term assets 2,500 (2,859)
Changes in assets and liabilities:
Decrease in accounts receivable 53,513 34,348
(Increase)/decrease in inventory (9,162) 2,197
(Increase)/decrease in deferred tax asset (2,904) 6,500
Decrease/(increase) in prepayments and other current assets 12,377 (10,932)
(Increase)/decrease in other assets (1,266) 758
Decrease in accounts payable and accrued expenses (90) (15,703)
Decrease in unearned income (17,409) -
Increase in other current liabilities 1,902 2,601
Decrease in other long-term liabilities (101) (1,164)
--------------- ---------------
Net cash provided by operating activities 105,830 63,427
--------------- ---------------
Cash flows from investing activities:
Redemption of marketable securities, net - 46,000
Decrease in short-term deposits 486,798 129,966
Purchase of long-term investments (1,761) (8,502)
Purchase of intangible assets - (25,725)
Purchase of fixed assets (3,130) (2,629)
Purchase of other assets - 685
--------------- ---------------
Net cash provided by investing activities 481,907 139,795
--------------- ---------------
Cash flows from financing activities:
Movements on long-term debt and notes - (76,520)
Proceeds from issue of common stock, net - (17)
Proceeds from exercise of options 778 4,279
--------------- --------------
Net cash provided by/ (used in) financing activities 778 (72,258)
--------------- --------------
Effect of foreign exchange rate changes on cash and cash equivalents
(98) (5,098)
--------------- --------------
Net increase in cash and cash equivalents 588,417 125,866
Cash and cash equivalents at beginning of period 118,040 93,266
--------------- --------------
Cash and cash equivalents at end of period 706,457 219,132
--------------- --------------
The cash flows for the three months ended March 31, 2001 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.
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME/(LOSSES)
(In thousands of U.S. dollars)
(Unaudited)
3 months to March 31, 2002 2001
------------ ------------
Net income 56,802 41,465
Foreign currency translation adjustments (5,964) (63,191)
Unrealised holding loss on on-current investments - (210)
------------ ------------
Comprehensive income 50,838 (21,936)
------------ ------------
There are no material tax effects related to the items included above.
The results for the three months ended March 31, 2001 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.
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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 (which includes the
Group's global headquarters) 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. 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; 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., 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** (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, the Company receives royalties on the sales
of ZEFFIX** for the treatment of hepatitis B, marketed by
GlaxoSmithKline, and will receive royalties on sales of REMINYL from
Janssen Pharmaceutica.
In addition, the Company has a number of products in late stage development
including DIRAME(TM) for the treatment of analgesia, FOZNOL(TM) (renamed
FOSRENOL(TM)) for the treatment of high blood phosphate levels associated with
kidney failure and TROXATYL(TM) for the treatment of leukemia and pancreatic
cancer. The Company submitted the first regulatory submission for FOSRENOL under
the European Mutual Recognition procedure on March 13, 2001 and a New Drug
Application with the US 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
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(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 March 31, 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 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.
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2. Inventory
March 31, December 31,
2002 2001
$'000 $'000
-------------- --------------
Finished goods 25,695 19,880
Work-in-process 19,891 18,262
Raw materials 10,266 8,548
-------------- --------------
55,852 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 (which
includes the Group's global headquarters) and global research and development,
each being managed and monitored separately. The Company evaluates performance
based on operating income.
Three months ended March 31, 2002 U.S. International R&D Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
Product sales 173,524 29,194 - 202,718
Licensing and development 541 141 - 682
Royalties 214 39,362 - 39,576
Other revenues - 217 - 217
---------- ---------- ---------- ----------
Total revenues 174,279 68,914 - 243,193
---------- ---------- ---------- ----------
Cost of revenues 14,420 12,091 - 26,511
Research and development - - 49,729 49,729
Selling, general and administrative 56,451 27,453 - 83,904
Depreciation and amortisation 5,945 4,228 - 10,173
---------- ---------- ---------- ----------
Total operating expenses 76,816 43,772 49,729 170,317
---------- ---------- ---------- ----------
Operating income/(loss) 97,463 25,142 (49,729) 72,876
---------- ---------- ---------- ----------
Three months ended March 31, 2001 U.S. International R&D Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
Product sales 126,804 24,710 - 151,514
Licensing and development 2,085 957 - 3,042
Royalties 60 32,831 - 32,891
Other revenues - 275 - 275
---------- ---------- ---------- ----------
Total revenues 128,949 58,773 - 187,722
---------- ---------- ---------- ----------
Cost of revenues 17,877 10,508 - 28,385
Research and development - - 37,684 37,684
Selling, general and administrative 36,406 21,932 - 58,338
Depreciation and amortisation 4,460 6,363 - 10,823
---------- ---------- ---------- ----------
Total operating expenses 58,743 38,803 37,684 135,230
---------- ---------- ---------- ----------
Operating income/(loss) 70,206 19,970 (37,684) 52,492
---------- ---------- ---------- ----------
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4. Net income per share
Basic net income per share is based upon the net income available to common
stockholders divided by the weighted-average number of common shares outstanding
during the period. Diluted net income per share is based upon net 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 income
per share:
3 months ended March 31, 2002 2001
$'000 $'000
---------------- ----------------
Numerator for basic net income per share 56,802 41,465
Interest charged on convertible debt, net of tax 1,397 -
---------------- ----------------
Numerator for diluted net income per share 58,199 41,465
---------------- ----------------
Weighted average number of shares: No. of shares No. of shares
---------------- ----------------
Basic 499,926,390 488,448,379
Effect of dilutive shares:
Stock options 3,582,567 12,250,729
Warrants 1,213,297 -
Convertible debt 20,143,005 -
---------------- ----------------
Diluted: 524,865,259 500,699,108
---------------- ----------------
Basic net income per share 11.4c 8.5c
---------------- ----------------
Diluted net income per share 11.1c 8.3c
---------------- ----------------
The calculation of weighted average number of shares for the three months ended
March 31, 2001 does not include convertible debt because, after eliminating
interest charged in the income statement from the numerator, the inclusion 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 months ended March 31, 2001
is provided to exclude the effect of goodwill amortization in accordance with
transitional disclosures relating to SFAS 142. Results for the three months
ended March 31, 2002 have been prepared in accordance with SFAS 142.
A transitional assessment of goodwill impairment as of January 1, 2002 has not
yet been completed. Any cumulative effect will be recognised in a later quarter
and the first quarter restated.
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3 months to 3 months to
March 31, 2002 March 31, 2001
$'000 $'000
---------------- ----------------
Reported net income 56,802 41,465
Add back: Goodwill amortization - 2,711
---------------- ----------------
Adjusted net income 56,802 44,176
Interest charged on convertible debt, net of tax 1,397 -
---------------- ----------------
Numerator for diluted net income/(loss) per share 58,199 44,176
---------------- ----------------
Weighted average number of shares: No. of shares No. of shares
---------------- ----------------
Basic 499,926,390 488,448,379
Diluted 524,865,259 500,699,108
Basic earnings per share:
Reported net income 11.4c 8.5c
Goodwill amortization (net of tax effect) - 0.5c
---------------- ----------------
Adjusted net income 11.4c 9.0c
---------------- ----------------
Diluted earnings per share:
Reported net income 11.1c 8.3c
Goodwill amortization (net of tax effect) - 0.5c
---------------- ----------------
Adjusted net income 11.1c 8.8c
---------------- ----------------
The calculation of the diluted weighted average number of shares for the three
months ended March 31, 2001 excludes the effects of convertible debt because it
has an antidilutive effect.
There is no tax effect related to the inclusion of goodwill amortisation in the
earnings calculation disclosed above.
b) Intangible fixed assets
March 31, 2002 March 31, 2001
$'000 $'000
------------ ------------
Intellectual property rights acquired 459,506 479,284
Less: Accumulated amortization (91,768) (87,885)
------------ ------------
367,738 391,399
------------ ------------
The useful economic lives of all intangible assets have been reassessed in
accordance with the Standard, and Group management is satisfied that no changes
are necessary to amortization periods, and that intangible assets will continue
to be amortized at their current rate.
Management estimates that the annual amortization charge in respect of
intangible fixed assets held at March 31, 2002 will be approximately $30 million
for each of the five years to March 31, 2007. Estimated amortization expense can
be affected by various factors including future acquisitions and disposals of
product rights.
6. Long-term debt
During the first three months of 2002, the Company did not issue debt or make
any debt repayments. During the first quarter in 2001, the Company repaid in
full amounts due to GSK under a promissory note totalling $76.5 million.
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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 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 - - - - - 56,802 - 56,802
Foreign currency
translation - - - - - - (5,964) (5,964)
Exchange of
exchangeable shares - 288 (4,440) (96) 4,440 - - -
Options exercised 37 510 - - 742 - - 779
Stock option
compensation - - - - (302) - - (302)
Tax benefit
associated with
exercise of stock
options - - - - 590 - - 590
----------- ----------- ----------- ----------- ------------ ----------- ----------- -----------
As at March 31, 2002
39,898 482,615 272,946 5,883 1,020,266 80,757 (98,973) 1,314,894
----------- ----------- ----------- ----------- ------------ ----------- ----------- -----------
Each exchangeable share is exchangeable into 3 ordinary shares.
8. Contingent liabilities
(i) Phentermine
Shire US Inc. (SUS) is a defendant in 14 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 territory 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 fourteen cases
described above, SUS has been dismissed as a defendant.
SUS became involved with phentermine through its acquisition of certain assets
of 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.
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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. Shire filed its answer to the complaint on November 24, 2000
and discovery related to the litigation is ongoing. Shire intends to
vigorouslydefend 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. Discovery in this litigation is ongoing. Shire
intends to vigorously defend such action.
(iii) AGRYLIN
SUS. has been named as a defendant in a recently filed lawsuit in a Texas state
court involving AGRYLIN. The complaint was filed in late December and 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 is involved in worldwide patent disputes with Emory University
("Emory") relating to lamivudine wherein Shire BioChem is opposing certain
patents and patent applications of Emory and wherein Emory is opposing 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. The parties are in the process of finalizing the settlement agreement.
Pursuant to the settlement agreement, Emory will grant Shire and GSK an
exclusive license under Emory's patent rights for lamivudine. The 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 has not to date filed revocation actions with
respect to any Shire BioChem lamivudine patents in issue in individual European
countries.
Emory has filed an appeal against the dioxolane-related decision and this appeal
is pending in the European Patent Office. This appeal does not relate to
lamivudine and is not included in the settlement agreement with Emory.
In Japan, Emory filed an opposition to Shire 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
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dismissed Emory's opposition to Shire BioChem's patent covering lamivudine.
Emory has filed revocation actions in Australia and South Korea against Shire
BioChem's granted patents covering lamivudine. Shire BioChem is aggressively
defending these patents.
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.
On May 19, 1998, the USPTO declared an interference between the Emory patent
that is the subject of a 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 has appealed the decision.
Pusuant to the lamivudine settlement agreement, Emory will accept the Board's
decision as final and the infringement suit will be dismissed with prejudice.
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 and are vigorously opposing the 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. An examined patent application
filed by Emory claiming lamivudine was also opposed by Shire 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's claims. There can be no assurance that Emory will not be able to
overcome this rejection.
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. Shire BioChem is aware that Emory
has filed patent applications in other countries, which Shire BioChem believes
may claim similar subject matter.
(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 company.
On March 28, 2002, the Board of Patent Appeals and Interferences issued an order
awarding priority to the Company's patent. There can also be no reassurance that
Yale will not appeal from the Board's judgement on priority against Yale and, if
successful, obtain claims in the US directed to methods of treatment for
hepatitis B using lamivudine. 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 $37,790 million. As at March 31, 2002 an
amount of $22,372 million (March 31, 2001: $17,217 million) has been subscribed.
In addition, the Company has undertaken to subscribe to additional amounts and
to pay royalties on certain future sales upon realization of certain conditions.
(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. The value of the agreement may exceed
Cdn$300 million (approximately $190 million) over the ten-year term, with an
option for the Government of Canada to extend the contract.
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
-15-
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 $2.8 million) of
capital expenditure on immoveables for the purpose of achieving the level of
pandemic readiness required. In addition, a performance bond equal to 10% of the
minimum estimated contract value in any year, which for 2001/2002 is Cdn$17.5
million (approximately $11 million), would become payable to the Government of
Canada if contracted penalty clauses were triggered.
(vii) 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
The results for the three months ended March 31, 2001 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 March 31, 2002, as compared
with those for the three months ended March 31, 2001
Overview of financial results
Total revenues for the three months ended March 31, 2002 increased by 30 per
cent to $243.2 million as compared to the three months ended March 31, 2001. The
Company recorded a first quarter net income of $56.8 million (2001: $41.5
million), an increase of 37 per cent.
Sales and marketing
Product sales of $202.7 million, which represented 83 per cent of total
revenues, increased by 34 per cent over first quarter 2001 product sales of
$151.5 million. Product sales in the U.S. continue to represent a significant
percentage of our worldwide sales, 86 per cent in the three months ended March
31, 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
March 31, 2002 March 31, 2001
$'000 $'000 % change
U.S. 173,524 126,804 +37
International 29,194 24,710 +18
------------ ------------ ------------
Total product sales 202,718 151,514 +34
------------ ------------ ------------
First quarter combined sales of ADDERALL XR and ADDERALL, marketed in the U.S.
for the treatment of Attention Deficit Hyperactivity Disorder (ADHD), were
$108.0 million, representing growth of 54 per cent over the first quarter of
2001. ADDERALL XR and ADDERALL had a 31 per cent share of the prescription
market for ADHD in the U.S. in March 2002 compared to 33 per cent in March 2001.
Since the launch of ADDERALL XR and a generic version of ADDERALL, the combined
amphetamine market represents 40 per cent of the total US ADHD market compared
with 33 per cent prior to these launches.
To support a successful launch of ADDERALL XR, we extended certain sales terms
to our customers (limited to $28 million of ADDERALL XR launch stock) to
encourage the immediate fulfilment of distribution inventory levels. $11 million
of this launch stock was booked as sales in Q4 2001. We have recognized the
balance of $17 million of ADDERALL XR shipments as realisable and earned in Q1
2002.
-16-
Sales of AGRYLIN, the only U.S. product licensed for the treatment of essential
thrombocythemia were $23.4 million, a 37 per cent increase over first quarter
2001 sales of $17.1 million. Shire achieved a prescription share of 26 per cent
of the total U.S. AGRYLIN market, including Hydrea and generic hydroxyurea, in
March 2002 compared to 20 per cent in March 2001.
Sales of PENTASA, licensed for the treatment of ulcerative colitis, at $17.5
million, were 22 per cent higher than the comparable period last year. PENTASA
had a 18 per cent share of the oral mesalamine/obsalazine market in March 2002
and March 2001.
Sales of PROAMATINE, for the treatment of postural hypotension, were $9.6
million, 26 per cent higher than first quarter 2001 sales of $7.6 million. The
U.S. prescription market for PROAMATINE and Florinef prescriptions indiciates
that PROAMATINE had a 24 per cent share in March 2002, an increase from 22 per
cent in March 2001.
CARBATROL containing carbamazapine for the treatment of epilepsy, recorded sales
growth of 20 per cent from sales of $9.6 million in the three months ended March
31, 2001 to $11.6 million in the three months ended March 31, 2002. This
translates to 36 per cent of the U.S. extended release carbamazepine
prescription market in March 2002, compared to 33 per cent in March 2001.
Royalties
Royalties increased by $6.7 million in the three months ended March 31, 2002, up
20 per cent from the three months ended March 31, 2001, to $39.6 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 commercialisation
partnership with GSK exists. ZEFFIX royalties, which represented 13 per cent of
Shire's royalty income in the first quarter 2002, increased by 40 per cent. 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 81 per cent for the three months
ended March 31, 2001 to 87 per cent for the three months ended March 31, 2002.
This is a reflection of the product mix as the higher margin products, ADDERALL
XR, ADDERALL and AGRYLIN, represented approximately 65 per cent of total product
sales in the three months ended March 31, 2002 compared to 58 per cent in the
three months ended March 31, 2001. Improved pricing in respect of the ADHD
franchise has also contributed to the higher gross margin for the three months
ended March 31, 2002.
Research and development
Research and development expenditure increased 32 per cent to $49.7 million for
the three months ended March 31, 2002 (2001: $37.7 million). R&D expenditure in
first quarter 2002 represented 20 per cent of revenues, consistent with the
first quarter 2001.
Selling, general and administrative
Selling, general and administrative expenses, excluding the effects of a stock
option compensation credit of $0.3 million (2001: charge $2.1 million) and
depreciation and amortization of $10.2 million (2001: $10.8 million), increased
by 50 per cent to $84.2 million for the three months ended March 31, 2002 (2001:
$56.2 million). This reflects the sustained high level of promotional spend
associated with the ADDERALL XR launch. As a percentage of product sales,
selling, general and administrative costs represented 42 per cent for the first
quarter 2002 (2001: 37 per cent).
The 6 per cent decrease in depreciation and amortization for the three months
ended March 31, 2002 is attributable to the introduction of a new US reporting
standard (SFAS No. 142 "Goodwill and Other Intangible Assets"), under which
goodwill is no longer amortised.
Interest income and expense
For the three months ended March 31, 2002, the Company received interest income
of $4.7 million (Q1 2001: $5.1 million). Interest expense decreased from $3.0
million to $2.0 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.
-17-
Income taxes
For the three months ended March 31, 2002 income taxes increased $6.8 million to
$20.7 million from $13.9 million for the three months ended March 31, 2001. The
Company's effective tax rate before the stock compensation credit was 27 per
cent for the three months ended March 31, 2002 (Q1 2001: 25 per cent). The
Company has recorded net deferred tax assets of $35.2 million at March 31, 2002.
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 March 31, 2002, the Company had net cash funds available as follows:
March 31, December 31,
2002 2001
$'000 $'000
-------------- --------------
Cash and cash equivalents 706,457 118,040
Marketable securities and other current
asset investments 237,113 723,911
Debt (406,967) (406,806)
-------------- --------------
Net cash 536,603 435,145
-------------- --------------
Net cash provided by operating activities for the three months ended March 31,
2002 was $105.8 million compared to $63.4 million for the three months ended
March 31, 2001.
Investing activities provided $481.9 million for the three months ended March
31, 2002 (2001: $139.8 million). This was due to an inflow of $486.8 million
cash by reducing cash placed on short-term deposit, and outflows in respect of
net capital expenditure on long-term investments and fixed assets of $4.9
million.
Investing activities for the three months ended March 31, 2001 included $46.0
million from the redemption of marketable securities, an inflow of $130.0
million cash by reducing cash placed on short-term deposit, and outflows in
respect of net capital expenditure on long-term investments, intangible assets
and fixed assets of $36.2 million.
Financing activities provided $0.8 million from exercises of employee stock
options for the three months ended March 31, 2002.
Financing activities for the three months ended March 31, 2001, which totalled a
$72.3 million outflow, included $4.3 million received from exercises of employee
stock options and repayments of long-term debt of $76.5 million.
Capital expenditure
Capital expenditure on tangible fixed assets for the three months ended March
31, 2002 was $3.1 million, which primarily related to laboratory and computer
equipment purchased across the Group. Other capital expenditure related to the
purchase of long-term investments ($1.8 million).
Capital expenditure on tangible fixed assets for the three months ended March
31, 2001 was $2.6 million. This included $1.5 million for tangible fixed assets
related to the Group's head office facility purchased in quarter four 2000, the
purchase of research and development equipment, and investment in computer
equipment across all operational areas. Capital expenditure on new products of
$25.7 million included $18.4 million for new products to be marketed by the
Group's Spanish and Italian operations. Other capital expenditure related to the
purchase of long-term investments ($8.5 million).
-18-
ITEM 3. Qualitative and Quantitative Disclosures about Market Risk
There have been no material changes in the Group's market risk exposure since
December 31, 2001. 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(i) Phentermine
Until April 1998, Shire US Inc. ("SUS', and formerly known as Shire Richwood
Inc.) 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 SUS has ceased to
distribute phentermine, the drug remains both approved and available in the U.S.
SUS 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. ) SUS is a defendant in 14 lawsuits still pending in
both U.S. federal and state courts related to phentermine. 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 SUS did not promote phentermine for long term combined use as part of
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.
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. Shire filed its answer to the complaint on November 24, 2000
and discovery related to the litigation is ongoing. Shire 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. Discovery in this litigation is ongoing. 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.
-19-
(iii) AGRYLIN
Shire US Inc. has been named as a defendant in a recently filed lawsuit in a
Texas state court involving AGRYLIN. The complaint was filed in late December
and 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 is involved in worldwide patent disputes with Emory University
("Emory") relating to lamivudine wherein Shire BioChem is opposing certain
patents and patent applications of Emory and wherein Emory is opposing 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. The parties are in the process of finalizing the settlement agreement.
Pursuant to the settlement agreement, Emory will grant Shire and GSK an
exclusive license under Emory's patent rights for lamivudine. The 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 has not to date filed revocation actions with
respect to any Shire BioChem lamivudine patents in issue in individual European
countries.
Emory has filed an appeal against the dioxolane-related decision and this appeal
is pending in the European Patent Office. This appeal does not relate to
lamivudine and is not included in the settlement agreement with Emory.
In Japan, Emory filed an opposition to Shire 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's
opposition to Shire BioChem's patent covering lamivudine. Emory has filed
revocation actions in Australia and South Korea against Shire BioChem's granted
patents covering lamivudine. Shire BioChem is aggressively defending these
patents.
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.
On May 19, 1998, the USPTO declared an interference between the Emory patent
that is the subject of a 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 has appealed the decision.
Pusuant to the lamivudine settlement agreement, Emory will accept the Board's
decision as final and the infringement suit will be dismissed with prejudice.
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 and are vigorously opposing the 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. An examined patent application
filed by Emory claiming lamivudine was also opposed by Shire BioChem in Japan.
The opposition was dismissed in April 1999 because it was improperly filed by a
representative who had previously represented
-20-
Emory. Notwithstanding the dismissal, the Japanese Patent Office issued an
ex-officio action rejecting all of Emory's claims. There can be no assurance
that Emory will not be able to overcome this rejection.
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. Shire BioChem is aware that Emory
has filed patent applications in other countries, which Shire BioChem believes
may claim similar subject matter.
(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 company.
On March 28, 2002, the Board of Patent Appeals and Interferences issued an order
awarding priority to the Company's patent. There can also be no reassurance that
Yale will not appeal from the Board's judgement on priority against Yale and, if
successful, obtain claims in the US directed to methods of treatment for
hepatitis B using lamivudine. 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.
-21-
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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: May 14, 2002 By: /s/ Angus C Russell
-------------------------------
Angus C Russell
Group Finance Director
Date: May 14, 2002 By: /s/ Rolf Stahel
-------------------------------
Rolf Stahel
Chief Executive