FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended March 31, 2000
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.)
East Anton, Andover, Hampshire SP10 5RG
England
(Address of principal executive offices) (Zip Code)
44 1264 333 455
(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 10, 2000
Common Stock: Ordinary Shares 251,809,610
THE "SAFE HARBOR" STATEMENT UNDER SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934 (AMENDED) AND SECTION 27A OF THE SECURITIES EXCHANGE 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 commercialisation, 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.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
SHIRE PHARMACEUTICALS GROUP PLC
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share and per share data)
March 31, December 31,
2000 1999
(Unaudited)
ASSETS ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents 67,307 54,082
Marketable securities and other current asset investments 58,020 84,344
Accounts receivable, net 75,689 59,018
Inventories, net 39,828 39,538
Deferred tax asset 5,312 5,312
Prepaid expenses and other current assets 6,211 9,012
------------ ------------
Total current assets 252,367 251,306
Investments 2,604 2,604
Property, plant and equipment, net 38,813 37,484
Intangible assets, net 550,536 557,934
Deferred tax asset 31,799 31,799
Other assets 5,058 6,636
------------ ------------
Total assets 881,177 887,763
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current instalments of long-term debt 5,333 9,608
Accounts and notes payable 106,695 114,509
Other current liabilities 9,214 48,703
------------ ------------
Total current liabilities 121,242 172,820
Long-term debt, excluding current instalments 128,040 126,314
Other long-term liabilities 541 1,345
------------ ------------
Total liabilities 249,823 300,479
------------ ------------
Shareholders' equity:
Common stock, 5p par value; 400,000,000 shares authorised; and
251,376,841 shares issued and outstanding (1999: 244,519,024) 20,611 20,063
Additional paid-in capital 883,257 832,650
Accumulated other comprehensive losses (13,122) (10,303)
Accumulated deficit (259,392) (255,126)
------------ ------------
Total shareholders' equity 631,354 587,284
------------ ------------
Total liabilities and shareholders' equity 881,177 887,763
------------ ------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHIRE PHARMACEUTICALS GROUP PLC
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except share and per share data)
(Unaudited)
Three months ended March 31, 2000 1999
------------ ------------
<S> <C> <C>
Product sales 113,165 87,756
Licensing and development 4,910 6,411
Royalties 605 629
Other revenues 298 456
------------ ------------
Total revenues 118,978 95,252
Costs and expenses:
Cost of revenues 20,905 23,511
Research and development 26,072 16,279
Selling, general and administrative (inclusive of
$23,246 (1999: $4,882) stock option compensation
charge) 66,046 40,935
------------ ------------
Total operating expenses 113,023 80,725
------------ ------------
Operating income 5,955 14,527
Interest income 1,371 1,613
Interest expense (3,405) (2,558)
Other expenses, net (431) 650
------------ ------------
Total other expenses (2,465) (295)
------------ ------------
Income before income taxes 3,490 14,232
Income taxes (7,756) (3,966)
------------ ------------
Net (loss)/income (4,266) 10,266
------------ ------------
Net (loss)/income per share:
Basic $(0.02) $0.04
Diluted $(0.02) $0.04
Weighted average number of shares:
Basic 246,672,276 240,438,985
Diluted 246,672,276 247,390,800
</TABLE>
The results for the three months ended March 31, 1999 have been restated to
include the results of Roberts Pharmaceutical Corporation which 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.
<PAGE>
<TABLE>
<CAPTION>
SHIRE PHARMACEUTICALS GROUP PLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)
Three months ended March 31, 2000 1999
---------- ----------
<S> <C> <C>
Net cash (used in)/provided by operating activities (35,763) 24,383
---------- ----------
Cash flows from investing activities:
Redemption of/(investment in) marketable securities 31,687 (16,509)
Increase in cash placed on short-term deposit (5,363) (25,751)
Expenses of acquisition of subsidiaries (212) -
Purchase of intangible assets - (5,474)
Purchase of fixed assets (1,935) (863)
Proceeds from sale of intangible fixed assets - 166
Proceeds from sale of fixed assets - 1,304
Collection on notes receivable 520 2,490
---------- ----------
Net cash provided by/(used in) investing activities 24,697 (44,637)
---------- ----------
Cash flows from financing activities:
Payments on long term debt, capital leases and notes (2,549) (7,634)
Proceeds from issue of common stock 3,033 1,231
Payments of stock issuance costs (3,385) -
Proceeds from exercise of options 27,192 1,341
---------- ----------
Net cash provided by/(used in) financing activities 24,291 (5,062)
---------- ----------
Effect of foreign exchange rate changes on cash and cash equivalents
- (37)
---------- ----------
Net increase/(decrease) in cash and cash equivalents 13,225 (25,353)
Cash and cash equivalents at beginning of period 54,082 52,973
---------- ----------
Cash and cash equivalents at end of period 67,307 27,620
---------- ----------
</TABLE>
The results for the three months ended March 31, 1999 have been restated to
include the results of Roberts Pharmaceutical Corporation which 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.
<PAGE>
SHIRE PHARMACEUTICALS GROUP PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars)
(Unaudited)
Three months ended March 31, 2000 1999
------------ ------------
Net (loss)/income (4,266) 10,266
Foreign currency translation adjustments (2,819) (7,934)
------------ ------------
Comprehensive (loss)/income (7,085) 2,332
------------ ------------
There are no tax effects related to the items included above.
The results for the three months ended March 31, 1999 have been restated to
include the results of Roberts Pharmaceutical Corporation which was accounted
for as a pooling of interests in accordance with APB 16, Accounting for Business
Combinations.
<PAGE>
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 is an international specialty pharmaceutical
company with a strategic focus on four therapeutic areas: central nervous system
disorders, metabolic diseases, oncology and gastroenterology. The Company's
principal products include Adderall, for the treatment of Attention Deficit
Hyperactivity Disorder, and Pentasa, for the treatment of ulcerative colitis.
The Group has operations in the United States, Europe and the rest of the world.
Within these geographic operating segments, revenues are derived from three
sources: sales of products by the Company's own sales and marketing operations,
licensing and development fees, and royalties.
The accompanying consolidated financial statements include the accounts of Shire
Pharmaceuticals Group plc and all its subsidiary undertakings after elimination
of intercompany accounts and transactions.
b) New Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement requires that all
derivatives be recorded in the balance sheet as either an asset or liability
measured at its fair value and that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133". This Statement defers for one year the effective date of
SFAS 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company has not yet determined the future impact of this statement on
its consolidated financial statements.
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. 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. It is suggested that these consolidated financial
statements be read in conjunction with the Company's audited consolidated
financial statements for the three years ended December 31, 1999 and notes
thereto.
2. Inventory
Inventory consists of:
March 31, December 31,
2000 1999
-------------- --------------
Finished goods 27,720 26,573
Work-in-process 6,008 6,389
Raw materials 6,100 6,576
-------------- --------------
39,828 39,538
-------------- --------------
<PAGE>
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 geographic, each being
managed and monitored separately and serving different markets. The Company
evaluates performance based on operating income.
<TABLE>
<CAPTION>
Three months ended March 31, 2000 Rest of
U.S. Europe World Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Product sales 93,102 15,243 4,820 113,165
Licensing and development 1,376 3,534 - 4,910
Royalties 44 561 - 605
Other revenues 3 - 295 298
---------- ---------- ---------- ----------
Total revenues 94,525 19,338 5,115 118,978
---------- ---------- ---------- ----------
Cost of revenues 12,955 5,730 2,220 20,905
Research and development 17,247 8,808 17 26,072
Selling, general and administrative 26,138 37,795 2,113 66,046
---------- ---------- ---------- ----------
Total operating expenses 56,340 52,333 4,350 113,023
---------- ---------- ---------- ----------
Operating income/(loss) 38,185 (32,995) 765 5,955
---------- ---------- ---------- ----------
Three months ended March 31, 1999 Rest of
U.S. Europe World Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
Product sales 71,438 12,464 3,854 87,756
Licensing and development 1,097 5,314 - 6,411
Royalties - 629 - 629
Other revenues 188 - 268 456
---------- ---------- ---------- ----------
Total revenues 72,723 18,407 4,122 95,252
Cost of revenues 13,979 5,045 4,487 23,511
Research and development 7,422 8,847 10 16,279
Selling, general and administrative 23,909 15,412 1,614 40,935
---------- ---------- ---------- ----------
Total operating expenses 45,310 29,304 6,111 80,725
---------- ---------- ---------- ----------
Operating income/(loss) 27,413 (10,897) (1,989) 14,527
---------- ---------- ---------- ----------
</TABLE>
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 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.
<PAGE>
The following table sets forth the computation of basic and diluted net
(loss)/income per share:
<TABLE>
<CAPTION>
Three months ended March 31, 2000 1999
$'000 $'000
---------------- ----------------
<S> <C> <C>
Net (loss)/ income available for common shareholders (4,266) 10,266
---------------- ----------------
Weighted average shares: No. of shares No. of shares
Basic - weighted average shares 246,672,276 240,438,985
Effect of dilutive stock options - 6,951,815
---------------- ----------------
Diluted - weighted average shares 246,672,276 247,390,800
---------------- ----------------
Basic net (loss)/income per share $(0.02) $0.04
---------------- ----------------
Diluted net (loss)/income per share $(0.02) $0.04
---------------- ----------------
</TABLE>
The calculation of weighted average number of shares for the three months ended
March 31, 2000 does not include potentially dilutive securities, stock options
and convertible debt, because their inclusion would be anti-dilutive in a loss
making period.
The number of dilutive stock options excluded from the calculation for the three
months ended March 31, 2000 was 12,629,355.
5. Restructuring
As a result of the merger with Roberts Pharmaceutical Corporation, the Company
recorded pre tax charges in the fourth quarter of 1999 totalling $75.9 million
comprising restructuring costs ($43.6 million) and merger related transaction
expenses ($32.3 million). The restructuring costs included $37.9 for employee
termination and $5.7 of property related expenses. The termination costs
consisted of payments for severance, medical and other benefits, outplacement
counselling, pension contributions and excise taxes.
In December 1999, the decision was made to close the Roberts' office facility in
Eatontown, New Jersey and consolidate the sales and marketing operations into
the existing Shire facility in Florence, Kentucky and to transfer the research
and development activities to Shire's facility in Rockville, Maryland.
Similarly, Roberts' sales and marketing operations in the U.K. were combined
with Shire's established operation in Andover, Hampshire.
As a result of the restructuring and elimination of duplicate facilities, a
total of 147 employees will be terminated. The office facility in Eatontown was
closed as of April 28, 2000 whilst the U.K. duplicate facility was closed on
March 10, 2000. Through May 11, 2000 substantially all of the planned
terminations were complete. It is anticipated that the remaining nine employees
will be terminated within the next three months.
During the first quarter of 2000 the Company utilized $32.8 million of the
restructuring reserve. This was primarily related to payments for severence as a
result of the closure of the duplicate facilities and pension contributions.
As of March 31, 2000 the Company had a combined reserve balance of $10.8
million. Management is satisfied that the restructure programme is progressing
as planned and expects that substantially all amounts related to the above
activities will be expended by the end of the second quarter of 2000.
<PAGE>
6. Consolidated statement of changes in shareholders' equity
Movements in shareholders' equity for the three months ended March 31, 2000 are
as follows:
<TABLE>
<CAPTION>
Accumu-
Common Common Additional Accumu- lated other Total
Stock Stock paid-in lated comprehen- sharehold-
Amount No. Shares capital deficit sive losses ers' equity
-------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
As at January 1, 2000 20,063 244,519 832,650 (255,126) (10,303) 587,284
Net loss - - - (4,266) - (4,266)
Foreign currency translation - - - - (2,819) (2,819)
Issuance of common stock on
conversion of debt 43 533 2,990 - - 3,033
Options exercised 505 6,325 26,687 - 27,192
Issuance costs - (3,385) - (3,385)
Stock option compensation - - 23,246 - - 23,246
Tax benefit associated with
exercise of stock options - - 1,069 - - 1,069
-------------------------- ------------- ------------- ------------- -------------
As at March 31, 2000 20,611 251,377 883,257 (259,392) (13,122) 631,354
-------------------------- ------------- ------------- ------------- -------------
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of operations
Overview of financial results
Group revenues for the three months ended March 31, 2000 increased by 25 per
cent to $119.0 million as compared to the three months ended March 31, 1999. The
increase was primarily the result of an increase in product sales. The Group
recorded a net loss of $4.3 million (1999: net income of $10.3 million).
Sales and marketing
Product sales represented 95 per cent of total revenues at $113.2 million, an
increase of 29 per cent over 1999 product sales of $87.8 million. Product sales
in the U.S. continue to represent a significant percentage of worldwide sales,
increasing from 81 per cent in the three months ended March 31, 1999 to 82 per
cent in the three months ended March 31, 2000.
<TABLE>
<CAPTION>
Product sales by segment 3 months to 3 months to
March 31, 2000 March 31,
1999 % change
$m $m
<S> <C> <C> <C>
United States 93.1 71.4 30.4
Europe 15.3 12.5 22.4
Rest of World 4.8 3.9 23.1
------------ ------------
Total product sales 113.2 87.8 29.0
------------ ------------
</TABLE>
First quarter sales of Adderall and DextroStat, products marketed in the U.S.
for the treatment of Attention Deficit Hyperactivity Disorder (ADHD), were $56.9
million, representing growth of 70 per cent over quarter one 1999. Shire had
gained 32.8 per cent of prescriptions written for ADHD in the US compared to
22.1 per cent at March 31, 1999 and 30.5 per cent at December 31, 1999.
Sales of Agrylin, the only U.S. product licensed for the treatment of essential
thrombocythemia, continued to grow strongly, reaching $11.0 million, a 113 per
cent increase over quarter one 1999 sales of $5.2 million. Shire achieved a
script share of 14.3 per cent at March 31, 2000 of the total U.S. Agrylin
market, including Hydrea and generic hydroxyurea, compared to 10.0 per cent at
March 31, 1999.
Sales of Pentasa, licensed for the treatment of ulcerative colitis, at $10.3
million, were 31 per cent lower than the comparable period last year, when sales
were higher due to wholesaler stockbuilding. Prescriptions for Pentasa increased
by 10.5 per cent during the quarter and reached a market share of 18.0 per cent
of the U.S. oral mesalamine market at March 31, 2000 compared to 17.6 per cent
at March 31, 1999.
Carbatrol recorded sales growth of 115 per cent from sales of $2.6 million in
the three months ended March 31, 1999 to $5.6 million in the three months ended
March 31, 2000. This translates to 26 per cent of the US extended release
carbamazepine prescription market at the end of March 2000, compared to 12.4 per
cent at March 31, 1999.
Sales of Shire's lead UK product, the Calcichew range, were maintained at $4.0
million, with a UK prescription calcium market share of 71 per cent at the end
of February 2000.
Licensing
Licensing and development fees in the three months ended March 31, 2000
decreased by 23 per cent to $4.9 million compared to $6.4 million in the three
months ended March 31, 1999. These results reflect the variability of this
income quarter on quarter, based as they are on milestone payments and the
development status of relevant projects, in particular Reminyl. Royalties were
flat at $0.6 million (1999: $0.6 million).
<PAGE>
Cost of sales and operating expenses
Gross margin on product sales increased from 73 per cent in the three months
ended March 31, 1999 to 82 per cent in the three months ended March 31, 2000.
This is due to the faster growth rate of the higher margin products,
particularly Adderall and Agrylin, which contributed a higher proportion of
sales in the first quarter of 2000 over the same period last year. As a result,
cost of sales decreased by 11 per cent to $20.9 million (1999: $23.5 million).
R&D expenditure increased by 60 per cent to $26.1 million (1999: $16.3 million).
This rise reflects the increased costs associated with the significant
proportion of projects at Phase II or later where development costs tend to be
higher, together with the upfront payment for the in-licensing of SPD 421
mentioned below. R&D expenditure in first quarter 2000 represents 22 per cent of
revenues compared to 17 per cent in first quarter 1999.
Selling, general and administrative expenses increased by 61 per cent to $66.0
million (1999: $40.9 million). A significant component of selling, general and
administrative expenses is the Company's stock option compensation charge under
APB 25. The APB 25 charge in the quarter was $23.2 million compared to $4.9
million in 1999. This increase is primarily due to the 66 per cent increase in
the share price between December 31, 1999 and February 29, 2000, being the date
upon which the Remuneration Committee of the Board exercised its powers to amend
the terms of the Executive share option scheme so as to remove substantially,
the impact of the charges from March 1, 2000 onwards.
Other factors contributing to the increase in selling, general and
administrative expenses are a 35 per cent growth in the U.S. sales force between
March 1999 and March 2000 and a 21 per cent increase in depreciation and
amortization to $7.6 million (1999: $6.3 million). The increase in the
amortization reflects the charge on those intangibles acquired since quarter two
of 1999. The relevant acquisitions include the European sales and marketing
subsidiaries purchased from Fuisz, the buy out of the Agrylin royalties and the
acquisition of U.S. marketing rights for Fareston.
Income taxes
For the three months ended March 31, 2000 income taxes increased $3.8 million
from $4.0 million to $7.8 million. The Company's effective tax rate before the
stock compensation charge of $23.2 million was 29 per cent for the three months
ended March 31, 2000 (Q1 1999: 21 per cent). The Company has recorded net
deferred tax assets of approximately $37 million. Realization is dependent upon
generating sufficient taxable income to utilize such assets. Although
realization on these 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, 2000, the Company had net debt as follows:
<TABLE>
<CAPTION>
Selected data: March 31, December 31,
2000 1999
$m $m
-------------- --------------
<S> <C> <C>
Cash and cash equivalents 67.3 54.1
Marketable securities and other current asset investments 58.0 84.3
Debt (133.4) (135.9)
-------------- --------------
Net (debt)/cash (8.1) 2.5
-------------- --------------
</TABLE>
<PAGE>
Net cash used in operating activities in the three months ended March 31, 2000
was $35.8 compared to $24.4 million cash provided by operating activities in the
three months to March 31, 1999. Cash payments in respect of restructuring and
merger related expenses following the acquisition of Roberts Pharmaceutical
Corporation in December 1999 are a major contributor to the outflow.
Investing activities provided $24.7 million, which mainly comprised $31.7
million on redemption of marketable securities, offset by $5.4 million of cash
placed on short-term deposit and $2.1 million of capital expenditure.
Financing activities provided $24.3 million, including net proceeds from the
issue of common stock of $26.8 million, offset by repayments of debt totalling
$2.5 million.
Capital expenditure
Capital expenditure on tangible fixed assets of $1.9 million in the three months
to March 31, 2000 primarily related to the upgrade of computer hardware.
Other matters
Restructuring
As a result of the merger with Roberts Pharmaceutical Corporation, the Company
recorded pre tax charges in the fourth quarter of 1999 totalling $75.9 million
comprising restructuring costs ($43.6 million) and merger related transaction
expenses ($32.3 million). The restructuring costs included $37.9 for employee
termination and $5.7 of property related expenses. The termination costs
consisted of payments for severance, medical and other benefits, outplacement
counselling, pension contributions and excise taxes.
In December 1999, the decision was made to close the Roberts' office facility in
Eatontown, New Jersey and consolidate the sales and marketing operations into
the existing Shire facility in Florence, Kentucky and to transfer the research
and development activities to Shire's facility in Rockville, Maryland.
Similarly, Roberts' sales and marketing operations in the U.K. were combined
with Shire's established operation in Andover, Hampshire.
As a result of the restructuring and elimination of duplicate facilities, a
total of 147 employees will be terminated. The office facility in Eatontown was
closed as of April 28, 2000 whilst the U.K. duplicate facility was closed on
March 10, 2000. Through May 11, 2000 substantially all of the planned
terminations were complete. It is anticipated that the remaining nine employees
will be terminated within the next three months.
During the first quarter of 2000 the Company utilized $32.8 million of the
restructuring reserve. This was primarily related to payments for severance as a
result of the closure of the duplicate facilities and pension contributions. As
of March 31, 2000 the Company had a combined reserve balance of $10.8 million.
Management expects that substantially all amounts related to the above
activities will be expended by the end of the second quarter of 2000.
The merger integration process with Roberts has moved ahead quickly as planned
and will be substantially completed during the second quarter of 2000. Cost
savings of approximately $4 million in the three months ended 31 March , 2000
arose mainly from savings in selling, marketing and general overheads. It is
expected that further benefits will arise in the second half of the year,
following the closure of the sites in Eatontown, New Jersey and Guildford, U.K.
<PAGE>
Item 3. Qualitative and Quantitative Disclosures about Market Risk
There have been no material changes in the Company's market risk exposure since
December 31, 1999. The Company's Annual Report on Form 10-K for the year ended
December 31, 1999 contains a detailed discussion of the Company's market risk
exposure in relation to interest rate market risk and foreign exchange market
risk.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are currently a defendant in approximately 3,600 lawsuits, in both federal
and state courts, which seek damages for, among other things, personal injury
arising from phentermine products supplied for the treatment of obesity by us
and several other pharmaceutical companies. We have been sued as a manufacturer
and distributor of phentermine, an anorectic used in the short-term treatment of
obesity and one of the products addressed by the lawsuits. If we are found
liable in some or all of these lawsuits for damages in excess of its assets, we
would be required to consider reorganizing and seeking protection in bankruptcy
or initiating insolvency proceedings. The suits relate to phentermine either
alone or together with fenfluramine or dexfenfluramine. In 136 of these suits,
the plaintiffs have specifically alleged in the complaint or subsequent
discovery that they used Oby-Cap or Oby-Trim, phentermine products produced by
us. The lawsuits generally allege the following claims:
o the defendants marketed phentermine and the other products for the
treatment of obesity and misled users about the products and the dangers
associated with them;
o the defendants failed to adequately test phentermine individually and when
taken in combination with the other drugs; and
o the defendants knew or should have known about the negative effects of the
drug and should have informed the public about such risks and/or failed to
provide appropriate warning labels.
We became involved with phentermine through the acquisition of certain assets of
Rexar Pharmaceutical Corp. in January 1994. In addition to liability as a result
of its own production of Oby-Cap, plaintiffs may seek to impose liability on us
as a successor to Rexar. Class certification has been sought for certain of the
claims made against us and the other defendants. In addition, pending federal
lawsuits have been consolidated as a multidistrict litigation in the Eastern
District of Pennysylvania.
We intend to vigorously defend all lawsuits and pursue all available reasonable
defenses. Legal expenses have thus far been paid by the insurers of our
supplier, Eon Labs Manufacturing Inc. Through approximately March 2000, Eon and
its distributors, including us, had exhausted approximately $39 million in
insurance proceeds defending the lawsuits. As of March 2000, additional
insurance was available to us and the other Eon distributors through Eon's
carriers in the amount of approximately $12 million in the aggregate. In
addition, we have our own insurance up to a maximum of $3 million for lawsuits
filed in the period to April 28, 1998, an unlimited indemnity given by Eon and a
limited indemnity from the former shareholders of Shire Richwood Inc. ("SRI")
given at the time of our acquisition of SRI. We have already spent a substantial
amount of resources in managing these lawsuits and will continue to do so.
Through April 2000, we were named as a defendant in approximately 3,600 lawsuits
and had been dismissed from approximately 500 of these cases. There are
approximately 2,400 additional cases pending dismissal as of April 25, 2000. In
only 136 cases pending was it alleged in the complaint or subsequent discovery
that the plaintiff had used our particular product and we have been dismissed
from 30 of these cases as well.
Reference is hereby made to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, for a description of certain other legal
proceedings to which the Company is a party.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule - March 31, 2000
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K containing information
pursuant to Item 5 ("Other Events") dated February 29, 2000, entitled
"Shire's Revenues up 30%; Operating Profit (before exceptionals) up 154% -
Shire Pharmaceuticals Group plc announces results for the twelve months
ended December 31, 1999)."
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 12, 2000 By: Angus C Russell
Group Finance Director
Date: May 12, 2000 By: Rolf Stahel
Chief Executive
EXHIBIT INDEX
Exhibit No. Exhibit
(27) Financial Data Schedule - March 31, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFROMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000936402
<NAME> SHIRE PHARMACEUTICALS GROPU PLC
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 67,307
<SECURITIES> 58,020
<RECEIVABLES> 76,219
<ALLOWANCES> 530
<INVENTORY> 39,828
<CURRENT-ASSETS> 252,367
<PP&E> 48,914
<DEPRECIATION> 10,101
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<CURRENT-LIABILITIES> 121,242
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0
0
<COMMON> 20,611
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<SALES> 113,165
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<INTEREST-EXPENSE> 3,405
<INCOME-PRETAX> 3,490
<INCOME-TAX> 7,756
<INCOME-CONTINUING> (4,266)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,266)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
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