FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 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 October 31, 2000
Common Stock: Ordinary Shares 256,134,685
THE "SAFE HARBOR" STATEMENT UNDER SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934 (AMENDED) AND SECTION 27A OF THE SECURITIES ACT OF 1933 (AMENDED). The
statements in this form 10-Q that are not historical facts are forward-looking
statements that involve risks and uncertainties, including but not limited to,
risks associated with the inherent uncertainty of pharmaceutical research,
product development and 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)
September 30, December 31,
2000 1999
(Unaudited)
ASSETS ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents 160,524 54,082
Marketable securities and other current asset investments 9,139 84,344
Accounts receivable, net 89,630 59,018
Inventories, net 38,665 39,538
Deferred tax asset 11,618 5,312
Prepaid expenses and other current assets 10,622 9,012
------------ ------------
Total current assets 320,198 251,306
Investments 5,412 2,604
Property, plant and equipment, net 28,649 37,484
Intangible assets, net 538,255 557,934
Deferred tax asset 17,451 31,799
Other assets 6,319 6,636
------------ ------------
Total assets 916,284 887,763
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current instalments of long-term debt 1,412 9,608
Accounts and notes payable 77,828 114,509
Other current liabilities 29,075 48,703
------------ ------------
Total current liabilities 108,315 172,820
Long-term debt, excluding current instalments 126,413 126,314
Other long-term liabilities 422 1,345
------------ ------------
Total liabilities 235,150 300,479
------------ ------------
Shareholders' equity:
Common stock, 5p par value; 400,000,000 shares authorised; and
255,563,638 shares issued and outstanding (1999: 244,519,024) 20,926 20,063
Additional paid-in capital 912,281 832,650
Accumulated other comprehensive losses (35,265) (10,303)
Accumulated deficit (216,808) (255,126)
------------ ------------
Total shareholders' equity 681,134 587,284
------------ ------------
Total liabilities and shareholders' equity 916,284 887,763
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
SHIRE PHARMACEUTICALS GROUP PLC
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except share and per share data)
(Unaudited)
3 months to 3 months to 9 months to 9 months to
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Product sales 131,810 102,491 362,921 283,346
Licensing and development 5,063 2,024 14,344 9,771
Royalties 685 548 2,608 2,318
Other revenues 257 721 732 1,708
------------ ------------ ------------ ------------
Total revenues 137,815 105,784 380,605 297,143
Costs and expenses:
Cost of sales 25,811 26,403 67,396 69,143
Research and development 31,659 19,868 86,333 51,516
Selling, general and administrative (inclusive 45,595 41,847 159,080 124,896
of stock option compensation charge of $206
$3,285, $23,688 and $10,343 respectively)
------------ ------------ ------------ ------------
Total operating expenses 103,065 88,118 312,809 245,555
------------ ------------ ------------ ------------
Operating income 34,750 17,666 67,796 51,588
Interest income 1,126 1,761 4,264 5,375
Interest expense (2,230) (2,397) (8,563) (7,290)
Other income/(expense), net (334) (224) 113 (96)
------------ ------------ ------------ ------------
Total other expenses (1,438) (860) (4,186) (2,011)
----------- ----------- ------------ ------------
Income before income taxes 33,312 16,806 63,610 49,577
Income taxes (10,099) (7,513) (25,292) (20,609)
------------ ------------ ------------ ------------
Net income 23,213 9,293 38,318 28,968
------------ ------------ ------------ ------------
Net income per share:
Basic $0.09 $0.04 $0.15 $0.12
Diluted $0.09 $0.04 $0.15 $0.12
Weighted average number of shares:
Basic 254,965,642 243,312,483 251,191,036 241,977,657
Diluted 263,664,249 251,446,294 259,639,689 249,505,550
</TABLE>
The results for the three months and nine months ended September 30, 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)
9 months to 9 months to
September 30, September 30,
2000 1999
---------- ----------
<S> <C> <C>
Net cash provided by operating activities 9,817 62,653
---------- ----------
Cash flows from investing activities:
Redemption of marketable securities, net 75,205 4,165
Increase in cash placed on short-term deposit - (45,477)
Purchase of long term investment (2,843) -
Expenses of acquisition of subsidiaries (657) -
Purchase of intangible assets (16,029) (40,299)
Purchase of fixed assets (6,646) (4,311)
Proceeds from sale of fixed assets 12,039 1,407
Collection on notes receivable 766 5,536
---------- ----------
Net cash provided by/(used in) investing activities 61,835 (78,979)
---------- ----------
Cash flows from financing activities:
Payments on long term debt, capital leases and notes (8,097) (8,241)
Proceeds from issue of common stock 2,783 4,834
Proceeds from exercise of options 43,047 3,295
---------- ----------
Net cash provided by/(used in) financing activities 37,733 (112)
---------- ----------
Effect of foreign exchange rate changes on cash and cash equivalents (2,943) 68
---------- ----------
Net increase/(decrease) in cash and cash equivalents 106,442 (16,370)
Cash and cash equivalents at beginning of period 54,082 52,973
---------- ----------
Cash and cash equivalents at end of period 160,524 36,603
---------- ----------
</TABLE>
The cash flows for the nine months ended September 30, 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
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars)
(Unaudited)
3 months to 3 months to 9 months to 9 months to
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income 23,213 9,293 38,318 28,968
Foreign currency translation adjustments (7,463) (1,871) (24,962) (15,698)
------------ ------------ ------------ ------------
Comprehensive income 15,750 7,422 13,356 13,270
------------ ------------ ------------ ------------
</TABLE>
There are no tax effects related to the items included above.
The results for the three months and nine months ended September 30, 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, Agrylin, for the treatment of thrombocythemia, 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.
In June 2000, the FASB issued Statement No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of FASB
Statement No. 133". SFAS 138 amends SFAS 133 to (a) exclude from the scope of
SFAS No. 133 nonfinancial assets that will be delivered in quantities expected
to be used or sold by the company over a reasonable period in the normal course
of business and for which physical delivery is probable, (b) permit hedging of a
benchmark interest rate, (c) allow hedging of foreign-currency-denominated
assets and liabilities and (d) allow for limited hedging of net foreign currency
exposures.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 outlines the SEC's views on applying generally accepted accounting
principles to revenue recognition in financial statements. Specifically, the
bulletin provides both general and specific guidance as to the periods in which
companies should recognize revenues. In addition, SAB 101 also highlights
factors to be considered when determining whether to recognize revenues on a
gross or net basis. SAB 101, as amended by SAB 101/A and SAB101/B, is effective
beginning no later than their fourth fiscal quarter of the fiscal year beginning
after December 15, 1999; as the Group is a calendar year-end company, this would
be the quarter ending December 31, 2000.
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.
<PAGE>
2. Inventory
Inventory consists of:
September 30, December 31,
2000 1999
-------------- --------------
Finished goods 20,591 26,573
Work-in-process 9,021 6,389
Raw materials 9,053 6,576
-------------- --------------
38,665 39,538
-------------- --------------
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 September 30, 2000 Rest of
U.S. Europe World Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Product sales 111,069 14,939 5,802 131,810
Licensing and development 884 4,179 - 5,063
Royalties 92 568 25 685
Other revenues 3 - 254 257
---------- ---------- ---------- ----------
Total revenues 112,048 19,686 6,081 137,815
---------- ---------- ---------- ----------
Cost of revenues 17,357 5,848 2,606 25,811
Research and development 20,396 11,263 - 31,659
Selling, general and administrative 29,162 14,616 1,817 45,595
---------- ---------- ---------- ----------
Total operating expenses 66,915 31,727 4,423 103,065
---------- ---------- ---------- ----------
Operating income/(loss) 45,133 (12,041) 1,658 34,750
---------- ---------- ---------- ----------
Three months ended September 30, 1999 Rest of
U.S. Europe World Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
Product sales 84,369 14,057 4,065 102,491
Licensing and development - 2,024 - 2,024
Royalties - 548 - 548
Other revenues 329 - 392 721
---------- ---------- ---------- ----------
Total revenues 84,698 16,629 4,457 105,784
---------- ---------- ---------- ----------
Cost of revenues 18,640 5,214 2,549 26,403
Research and development 14,361 5,495 12 19,868
Selling, general and administrative 26,667 13,698 1,482 41,847
---------- ---------- ---------- ----------
Total operating expenses 59,668 24,407 4,043 88,118
---------- ---------- ---------- ----------
Operating income/(loss) 25,030 (7,778) 414 17,666
---------- ---------- ---------- ----------
<PAGE>
Nine months ended September 30, 2000 Rest of
U.S. Europe World Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
Product sales 300,619 45,290 17,012 362,921
Licensing and development 2,874 11,470 - 14,344
Royalties 221 2,362 25 2,608
Other revenues 16 - 716 732
---------- ---------- ---------- ----------
Total revenues 303,730 59,122 17,753 380,605
---------- ---------- ---------- ----------
Cost of revenues 42,794 17,241 7,361 67,396
Research and development 57,180 29,110 43 86,333
Selling, general and administrative 88,020 65,565 5,495 159,080
---------- ---------- ---------- ----------
Total operating expenses 187,994 111,916 12,899 312,809
---------- ---------- ---------- ----------
Operating income/(loss) 115,736 (52,794) 4,854 67,796
---------- ---------- ---------- ----------
Nine months ended September 30, 1999 Rest of
U.S. Europe World Total
$'000 $'000 $'000 $'000
---------- ---------- ---------- ----------
Product sales 232,413 39,204 11,729 283,346
Licensing and development 1,097 8,674 - 9,771
Royalties - 2,318 - 2,318
Other revenues 517 - 1,191 1,708
---------- ---------- ---------- ----------
Total revenues 234,027 50,196 12,920 297,143
---------- ---------- ---------- ----------
Cost of revenues 42,541 15,165 11,437 69,143
Research and development 31,152 20,330 34 51,516
Selling, general and administrative 82,044 38,398 4,454 124,896
---------- ---------- ---------- ----------
Total operating expenses 155,737 73,893 15,925 245,555
---------- ---------- ---------- ----------
Operating income/(loss) 78,290 (23,697) (3,005) 51,588
---------- ---------- ---------- ----------
</TABLE>
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.
<PAGE>
The following table sets forth the computation of basic and diluted net income
per share:
<TABLE>
<CAPTION>
3 months to 3 months to 9 months to 9 months to
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Numerator for basic net income per share 23,213 9,293 38,318 28,968
Interest charged on convertible debt, net of tax 73 - - -
---------------- ---------------- ---------------- ----------------
Numerator for diluted net income per share 23,286 9,293 38,318 28,968
---------------- ---------------- ---------------- ----------------
Weighted average shares: No. of shares No. of shares No. of shares No. of shares
Basic - weighted average shares 254,965,642 243,312,483 251,191,036 241,977,657
Effect of dilutive stock options 7,598,216 8,133,811 8,448,653 7,527,893
Convertible debt 1,100,391 - - -
---------------- ---------------- ---------------- ----------------
Diluted - weighted average shares 263,664,249 251,446,294 259,639,689 249,505,550
---------------- ---------------- ---------------- ----------------
Basic net income per share $0.09 $0.04 $0.15 $0.12
---------------- ---------------- ---------------- ----------------
Diluted net income per share $0.09 $0.04 $0.15 $0.12
---------------- ---------------- ---------------- ----------------
</TABLE>
The calculation of diluted net income per share for the nine months ended
September 30, 2000 excludes the effects of convertible debt securities issued by
the Company. These securities have been excluded from the diluted net income per
share because they have an antidilutive effect on the calculation, resulting
from the inclusion of the assumed interest savings associated with the repayment
of the related debt as a component of net income available for common
shareholders. These securities convert into 1,100,391 shares of common stock.
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 million for
employee termination and $5.7 million 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 part of the restructuring and elimination of duplicate facilities, the
Company identified a total of 147 employees to be terminated. All of the planned
terminations were completed during the second quarter of 2000. The office
facility in Eatontown was closed as of April 28, 2000 whilst the U.K. duplicate
facility was closed on March 10, 2000. During the third quarter of 2000, the
Company completed the sale of the Eatontown facility.
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.
<PAGE>
During the second quarter of 2000, the Company utilized a further $2.8 million
of the restructuring reserve. This was in respect of employee termination costs
and property related expenses.
The Company utilized $6.5 million of the remaining restructuring reserve in the
third quarter of 2000. This was primarily in respect of excise taxes. As of
September 30, 2000 the Company had a combined reserve balance of $1.5 million.
6. Consolidated statement of changes in shareholders' equity
Movements in shareholders' equity for the nine months ended September 30, 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 income - - - 38,318 - 38,318
Foreign currency translation - - - - (24,962) (24,962)
Issuance of new shares 155 703 5,372 - - 5,527
Options exercised 708 10,342 42,980 - - 43,688
Issuance costs - - (3,385) - - (3,385)
Stock option compensation - - 23,688 - - 23,688
Tax benefit associated with
exercise of stock options - - 10,976 - - 10,976
-------------------------- ------------- ------------- ------------- -------------
As at September 30, 2000 20,926 255,564 912,281 (216,808) (35,265) 681,134
-------------------------- ------------- ------------- ------------- -------------
</TABLE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of operations for the three months ended September 30, 2000, as compared
with those for the three months ended September 30, 1999
Overview of financial results
Group revenues for the three months ended September 30, 2000 increased by 30 per
cent to $137.8 million as compared to the three months ended September 30, 1999,
primarily the result of a $29.3 million increase in product sales. The Group
recorded third quarter net income of $23.2 million (Q3 1999: $9.3 million).
Sales and marketing
Product sales represented 96 per cent of total revenues at $131.8 million, an
increase of 29 per cent over third quarter 1999 product sales of $102.5 million.
Product sales in the U.S. continue to represent a significant percentage of our
worldwide sales, 84% in the three months ended September 30, 2000.
Product sales by segment 3 months to 3 months to
September 30, September 30, % change
2000 1999
$'000 $'000
United States 111,069 84,369 31.6
Europe 14,939 14,057 6.3
Rest of World 5,802 4,065 42.7
------------ ------------ ------------
Total product sales 131,810 102,491 28.6
------------ ------------ ------------
<PAGE>
Third quarter sales of Adderall and DextroStat, products marketed in the U.S.
for the treatment of Attention Deficit Hyperactivity Disorder (ADHD), were
$62.1million, representing growth of 63 per cent over the third quarter of 1999.
Shire gained 36.0 per cent of prescriptions written for ADHD in the U.S. in
September 2000 compared to 27.3 per cent in September 1999. Adderall is now the
brand leader in the U.S. market for ADHD.
Sales of Agrylin, the only U.S. product licensed for the treatment of essential
thrombocythemia were $13.7 million, a 242 per cent increase over quarter three
1999 sales of $4.0 million. Sales in quarter three 1999 were exceptionally low
following a price increase on July 1, 1999. Shire achieved a script share of
17.4 per cent of the total U.S. Agrylin market, including Hydrea and generic
hydroxyurea, in September 2000 compared to 12.2 per cent in September 1999.
Sales of Pentasa, licensed for the treatment of ulcerative colitis, at $14.4
million, were 29 per cent lower than the comparable period last year, when sales
were exceptionally high due to wholesaler stockbuilding in anticipation of an
October 1999 price increase. Pentasa had a 17.9 per cent share of the oral
mesalamine/obsalazine market in September 2000 compared to 17.6 per cent in
September 1999.
Carbatrol recorded sales growth of 63 per cent from sales of $4.3 million in the
three months ended September 30, 1999 to $6.9 million in the three months ended
September 30, 2000. This translates to 30.1 per cent of the U.S. extended
release carbamazepine prescription market in September 2000, compared to 20.0
per cent in September 1999.
Licensing
Licensing and development fees in the three months ended September 30, 2000
increased by 150 per cent to $5.1 million compared to $2.0 million in the three
months ended September 30, 1999. These results reflect the variability of this
income quarter on quarter, based substantially as it is on the reimbursement of
bulb related costs incurred in connection with Reminyl. Royalties increased by
$0.2 million to $0.7 million.
Cost of sales and operating expenses
Gross margin on product sales increased from 74 per cent in the three months
ended September 30, 1999 to 80 per cent in the three months ended September 30,
2000. This is due to the faster growth rate of the higher margin products,
particularly Adderall and Agrylin which together contributed 56 per cent of
total product sales compared to 39 per cent in quarter three 1999.
R&D expenditure increased 59 per cent to $31.7 million (Q3 1999: $19.9 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. R&D expenditure in third quarter 2000 represents 23 per cent of revenues
compared to 19 per cent in third quarter 1999.
Selling, general and administrative expenses, excluding the effects of a minor
APB25 charge of $0.2 million (Q3 1999: $3.3 million), increased by 18 per cent
to $45.3 million (Q3 1999: $38.6 million). This increase reflects growth in the
US sales force and is partly offset by merger cost savings of around $7 million
for the third quarter 2000.
Depreciation and amortisation increased by 8 per cent to $7.5 million (Q3 1999:
$7.0 million).
Income taxes
For the three months ended September 30, 2000 income taxes increased $2.6
million from $7.5 million to $10.1 million. The Company's effective tax rate
before the stock compensation charge was 30 per cent for the three months ended
September 30, 2000 (Q3 1999: 37 per cent). The Company has recorded net deferred
tax assets of $29.1 million. Realization is dependent upon generating sufficient
taxable income to utilize such assets. Although realization on these assets is
not assured, management believes it is more likely than not that the deferred
tax assets will be realized.
Results of operations for the nine months ended September 30, 2000, as compared
with those for the nine months ended September 30, 1999
<PAGE>
Overview of financial results
Group revenues for the nine months ended September 30, 2000 were $380.6 million,
an increase of $83.5 million or 28 per cent over the nine months ended September
30, 1999. The Group recorded net income of $38.3 million (1999: $29.0 million).
Net income in the nine months to September 30, 2000 includes an APB 25 charge of
$23.7 million compared to $10.3 million in the comparative period last year.
Sales and marketing
Product sales were $362.9 million in the nine months to September 30, 2000
(1999: $283.3 million), representing an increase of 28 per cent. Of particular
note, Adderall sales at $158.8 million were 64 per cent higher than in the nine
months to September 1999.
Other products contributing to the overall 28 per cent increase are Agrylin
(increase of $14.9 million or 52 per cent) and Carbatrol (increase of $7.1
million or 67 per cent).
U.S. product sales for the nine months ended September 30, 2000 represented 83
per cent of the group's total sales revenue.
Product sales by segment 9 months to 9 months to
September 30, September 30, % change
2000 1999
$'000 $'000
United States 300,619 232,413 29.3
Europe 45,290 39,204 15.5
Rest of World 17,012 11,729 45.0
------------ ------------ ------------
Total product sales 362,921 283,346 28.1
------------ ------------ ------------
Licensing
Licensing and development fees in the nine months ended September 30, 2000
increased by 47 per cent to $14.3 million compared to $9.8 million in the nine
months ended September 30, 1999.
Royalties increased by $0.3 million to $2.6 million.
Cost of sales and operating expenses
Gross margin on product sales increased from 76 per cent in the nine months
ended September 30, 1999 to 81 per cent in the nine months ended September 30,
2000. This is due to the faster growth rate of the higher margin products,
particularly Adderall and Agrylin, which contributed 56 per cent of total
product sales compared to 44 per cent in the nine months ended September 30,
1999.
R&D expenditure increased 68 per cent to $86.3 million (1999: $51.5 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. R&D expenditure in the nine months ended September 30, 2000 represents
23 per cent of revenues compared to 17 per cent in the comparative period last
year.
Selling, general and administrative expenses increased by 27 per cent to $159.1
million (1999: $124.9 million). A significant factor is the APB25 charge for the
nine months to September 30, 2000 of $23.7 million (1999: $10.3 million). In
2000, $23.3 million of this charge was recorded during the first fiscal quarter.
The executive share option scheme was amended effective from March 1, 2000 to
allow for compensation for this arrangement to be recorded based upon the share
price at that date, rather than being based on the share price at each reporting
date.
Depreciation and amortisation included in selling, general and administrative
expenses, increased by 17 per cent to $22.8 million (1999: $19.5 million). This
increase reflects the amortisation charge on those intangible assets acquired
since the third quarter of 1999.
<PAGE>
Income taxes
For the nine months ended September 30, 2000 income taxes were $25.3 million,
representing an effective rate of tax on income pre APB 25 charge of 29 per
cent.
Liquidity and Financial Condition
The Company's funding requirements depend on a number of factors, including the
Company's product development programs, business and product acquisitions, the
level of resources required for the expansion of marketing capabilities as the
product base expands, increased investment in accounts receivable and inventory
which may arise as sales levels increase, competitive and technological
developments, the timing and cost of obtaining required regulatory approvals for
new products, and the continuing revenues generated from sales of its key
products.
At September 30, 2000, the Company had net cash funds available as follows:
Selected data: September 30, December 31,
2000 1999
$'000 $'000
-------------- --------------
Cash and cash equivalents 160,524 54,082
Marketable securities and other
current asset investments 9,139 84,344
Debt (127,825) (135,922)
-------------- --------------
Net cash 41,838 2,504
-------------- --------------
Net cash provided by operating activities in the nine months ended September 30,
2000 was $9.8 million compared to $62.7 million provided by operating activities
in the nine months to September 30, 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 in 2000.
Investing activities provided $61.8 million, which mainly comprised $75.2
million on redemption of marketable securities, $12.0 million of proceeds from
the sale of fixed assets offset by new capital expenditure of $26.2 million and
collection on notes receivable of $0.8 million. The fixed assets proceeds relate
to the sale of the Eatontown site in New Jersey.
Financing activities provided $37.7 million, which mainly comprised proceeds
from the exercise of stock options.
Capital expenditure
Capital expenditure in the nine months to September 30, 2000 included $6.6
million for tangible fixed assets and $16.0 million for intangible assets
comprising the purchase of the exclusive rights in certain European countries of
Balsalazide, a treatment for ulcerative colitis.
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 million for
employee termination and $5.7 million 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.
<PAGE>
As part of the restructuring and elimination of duplicate facilities, the
Company identified a total of 147 employees to be terminated. All of the planned
terminations were completed during the second quarter of 2000. The office
facility in Eatontown was closed as of April 28, 2000 whilst the U.K. duplicate
facility was closed on March 10, 2000. During the third quarter of 2000, the
Company completed the sale of the Eatontown facility.
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.
During the second quarter of 2000, the Company utilized a further $2.8 million
of the restructuring reserve. This was in respect of employee termination costs
and property related expenses.
The Company utilized $6.5 million of the restructuring reserve in the third
quarter of 2000. This was primarily in respect of excise taxes. As of September
30, 2000 the Company had a combined reserve balance of $1.5 million. Management
is satisfied that the restructure programme is progressing as planned. Cost
savings of approximately $17.0 million have arisen in the nine months to
September 2000, and it is anticipated that further benefits will arise in the
remaining quarter of the year.
Purchase of new office facility
On October 17, 2000 the Company completed the purchase of a new office facility
in Basingstoke, Hampshire, U.K., which will replace the group's existing leased
offices in Andover, Hampshire. The purchase price was approximately $15 million.
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 2,300 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 our 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 111 of these pending
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 our 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. ("Eon") or directly by Eon itself. Through
approximately October 2000, Eon and its distributors, including us, had
exhausted approximately $50 million in insurance proceeds defending the
lawsuits. We have our own insurance up to a maximum of $3 million for lawsuits
filed in the period to April 28, 1998, an additional $80 million of coverage put
in place during 2000, and an unlimited indemnity given by Eon for phentermine it
manufactured for us. We have already spent a substantial amount of resources in
managing these lawsuits and will continue to do so.
On August 31, 2000, we entered into an agreement (the "Termination Agreement")
with the former shareholders of Shire Richwood Inc. ("SRI"), pursuant to which
the ordinary shares placed into escrow at the time of the purchase of SRI by
Shire were released and the escrow agreement and the escrow fund were terminated
. The escrow agreement with the SRI shareholders was initially established by
Shire in 1997 in anticipation of possible phentermine related claims against the
Company. Under the terms of the Termination Agreement, monies in the approximate
amount of $7 million were received by Shire and the escrow fund was terminated.
The remaining shares were distributed to the former SRI shareholders.
Through October 26, 2000 we were named as a defendant in approximately 3,725
lawsuits and had been dismissed from approximately 1,447 of these cases. There
are approximately 1,816 additional cases pending dismissal as of October 26,
2000.
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 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on July 7, 2000, the following
proposals were adopted by the margins indicated:
1. To elect a Board of Directors to hold office until their successors are
elected and qualified.
<TABLE>
<CAPTION>
Number of votes
For Against Open Abstention No instruction
<S> <C> <C> <C> <C> <C>
Rolf Stahel 99,175,321 158,157 48,800,953 127,456 43,561,519
Dr Barry Price 99,175,321 157,957 48,801,153 127,456 43,561,519
Dr James Cavanaugh 96,831,863 540,717 48,838,100 2,051,207 43,561,519
Angus Russell 99,136,288 163,157 48,852,636 109,806 43,561,519
Dr Zola Horovitz 98,477,736 724,995 48,803,100 256,056 43,561,519
Ronald Nordman 93,924,565 5,271,511 48,803,500 262,311 43,561,519
Joseph Smith 98,429,543 771,788 48,804,500 256,056 43,561,519
John Spitznagel 93,821,219 5,375,232 48,803,125 262,311 43,561,519
</TABLE>
2. To adopt and establish the Shire Pharmaceuticals Group plc 2000 Executive
Share Option Scheme.
<TABLE>
<CAPTION>
Number of votes
For Against Open Abstention No instruction
<S> <C> <C> <C> <C> <C>
58,270,695 32,915,580 48,798,501 8,277,111 43,561,519
</TABLE>
3. To approve the amendments to the Shire Pharmaceuticals Sharesave Scheme.
<TABLE>
<CAPTION>
Number of votes
For Against Open Abstention No instruction
<S> <C> <C> <C> <C> <C>
80,446,847 14,385,337 48,799,510 4,630,193 43,561,519
</TABLE>
4. To approve the amendments to the Shire Pharmaceuticals Group plc Employee
Stock Purchase Plan.
<TABLE>
<CAPTION>
Number of votes
For Against Open Abstention No instruction
<S> <C> <C> <C> <C> <C>
84,840,326 14,002,416 48,799,210 619,935 43,561,519
</TABLE>
5. To approve the amendments to the Shire Pharmaceuticals Group plc Long Term
Incentive Plan.
<TABLE>
<CAPTION>
Number of votes
For Against Open Abstention No instruction
<S> <C> <C> <C> <C> <C>
84,124,391 14,697,900 48,799,870 639,726 43,561,519
</TABLE>
<PAGE>
6. To authorise the directors to establish supplements or appendices to the
four schemes mentioned in points two to five above to take account of legal
or accounting changes in overseas territories as they consider appropriate.
<TABLE>
<CAPTION>
Number of votes
For Against Open Abstention No instruction
<S> <C> <C> <C> <C> <C>
81,018,400 17,807,446 48,800,882 635,159 43,561,519
</TABLE>
7. To authorise the directors pursuant to Section 80 of the Companies Act 1985
to exercise all or any of the powers of the company to allot relevant
securities up to a nominal amount equal to 33 1/3 per cent of the total
share capital of the Company in issue on 17 May 2000 and for a period
expiring five years after the date of the passing of this Resolution.
<TABLE>
<CAPTION>
Number of votes
For Against Open Abstention No instruction
<S> <C> <C> <C> <C> <C>
99,116,620 256,203 48,804,131 84,933 43,561,519
</TABLE>
8. To empower the directors pursuant to Section 95 of the Companies Act 1985
and subject to the passing of the resolution detailed in point seven above,
to allot equity securities of the Company pursuant to the authority
conferred by the passing of that resolution, as if Section 89(1) of the
Companies Act 1985 did not apply to such allotments, provided that this
power shall expire five years after the date of passing of this Resolution
and that it is limited to certain equity securities and that it is limited
to the equivalent of 5 per cent of the issued ordinary share capital at the
date of the last published accounts of the Company.
<TABLE>
<CAPTION>
Number of votes
For Against Open Abstention No instruction
<S> <C> <C> <C> <C> <C>
99,052,213 271,713 48,804,260 133,701 43,561,519
</TABLE>
9. To empower the directors pursuant to Section 95 of the Companies Act 1985
and subject to the passing of the Resolution detailed in point seven above,
including any authority conferred by the passing of the Resolution detailed
in point eight above, to allot equity securities of the Company as if
Section 89(1) of the Companies Act 1985 did not apply to such allotment,
provided that this power shall expire five years after the date of passing
of this Resolution and that it is limited to the allotment of equity
securities to raise funds solely for the purpose of repaying any
outstanding amount under the facility agreement where DLJ Capital Funding,
Inc is agent and that it shall have a maximum nominal value of equity
securities.
<TABLE>
<CAPTION>
Number of votes
For Against Open Abstention No instruction
<S> <C> <C> <C> <C> <C>
94,242,644 5,059,502 48,804,260 155,481 43,561,519
</TABLE>
10. That the Company adopt new Articles of Association in the form produced to
the meeting, as initialled for the purposes of identification only by the
Chairman.
<TABLE>
<CAPTION>
Number of votes
For Against Open Abstention No instruction
<S> <C> <C> <C> <C> <C>
98,478,979 854,638 48,804,082 124,188 43,561,519
</TABLE>
<PAGE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule - September 30, 2000
(b) Reports on Form 8-K
During the third quarter ended September 30, 2000, the following
reports on Form 8-K were filed by the Company with the Securities and
Exchange Commission:
Form 8-K (Item 5 - Other Events), date of earliest event reported
August 31, 2000, with respect to the Termination Agreement with the
former shareholders of Shire Richwood Inc.
Form 8-K (Item 5 - Other Events), date of earliest event reported
September 25,2000, with respect to Underwriting Agreement in connection
with the offering of American Depositary Shares by Yamanouchi Group
Holdings, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHIRE PHARMACEUTICALS GROUP PLC
(Registrant)
Date: November 13, 2000 By: /s/ Angus C. Russell
-------------------------------
Angus C. Russell
Group Finance Director
Date: November 13, 2000 By: /s/ Rolf Stahel
-------------------------------
Rolf Stahel
Chief Executive
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(27) Financial Data Schedule - September 30, 2000
