UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 2004
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 of incorporation or organization) | (I.R.S. Employer Identification No.) |
| Hampshire International Business Park, Chineham, | +44 1256 894 000 |
| Basingstoke, Hampshire, England, RG24 8EP | (Registrant’s telephone number, including area code) |
| (Address of principal executive offices and zip 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 o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x No o
As of July 31, 2004, the number of outstanding ordinary shares of the Registrant was 483,419,491.
1
THE “SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements included herein that are not historical facts are forward-looking statements. Such forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, Shire’s results could be materially affected. The risks and uncertainties include, but are not limited to, risks associated with the inherent uncertainty of pharmaceutical research, product development, manufacturing and commercialization, the impact of competitive products, including, but not limited to, the impact of competitive products on Shire’s Attention Deficit Hyperactivity Disorder (ADHD) franchise, patents, including but not limited to, legal challenges relating to Shire’s ADHD franchise, government regulation and approval, including but not limited to the expected product approval dates of lanthanum carbonate (FOSRENOL®), methylphenidate (METHYPATCH®), anagrelide hydrochloride (XAGRID®), carbamazepine (BIPOTROL®) and the adult indication for extended release mixed amphetamine salts (ADDERALL XR®), the implementation of Shire’s internal reorganization and other risks and uncertainties detailed from time to time in Shire’s filings, including the Annual Report filed on Form 10-K for the year ended December 31, 2003 with the Securities and Exchange Commission.
The following are trademarks of Shire Pharmaceuticals Group plc or its subsidiaries, which are the subject of trademark registrations in certain countries.
ADDERALL XR® (mixed amphetamine salts)
AGRYLIN® (anagrelide hydrochloride)
BIPOTROL® (carbamazepine)
CALCICHEW® (calcium carbonate)
CARBATROL® (carbamazepine)
FOSRENOL® (lanthanum carbonate)
FLUVIRAL® S/F (split virion influenza vaccine)
TROXATYL® (troxacitabine)
XAGRID® (anagrelide hydrochloride)
The following are trademarks of third parties.
3TC® (trademark of GlaxoSmithKline (GSK))
COMBIVIR® (trademark of GSK)
EPIVIR® (trademark of GSK)
HEPTOVIR® (trademark of GSK)
METHYPATCH® (trademark of Noven)
NEISVAC-C® (trademark of Baxter)
PENTASA® (trademark of Ferring AS)
REMINYL® (trademark
of Johnson & Johnson)
TRIZIVIR® (trademark of GSK)
ZEFFIX® (trademark of GSK)
2
SHIRE PHARMACEUTICALS GROUP PLC
Form 10-Q for the quarter ended June 30, 2004
Table of contents
| Page | ||
| PART I FINANCIAL INFORMATION | 4 | |
| ITEM 1. FINANCIAL STATEMENTS | ||
| Consolidated balance sheets at June 30, 2004 and December 31, 2003 | 4 | |
| Consolidated statements of operations for the three months and six months ended June 30, 2004 and | 6 | |
| June 30, 2003 | ||
| Consolidated statements of comprehensive income for the three months and six months ended June 30, | 8 | |
| 2004 and June 30, 2003 | ||
| Consolidated statements of cash flows for the six months ended June 30, 2004 and June 30, 2003 | 9 | |
| Notes to the consolidated financial statements | 11 | |
| ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS | 31 | |
| OF OPERATIONS | ||
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 46 | |
| ITEM 4. CONTROLS AND PROCEDURES | 46 | |
| PART II OTHER INFORMATION | 47 | |
| ITEM 1. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER | 47 | |
| MATTERS | ||
| ITEM 2. CHANGES IN SECURITIES | 47 | |
| ITEM 3. DEFAULTS UPON SENIOR SECURITIES | 47 | |
| ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 48 | |
| ITEM 5. OTHER INFORMATION | 50 | |
| ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K | 50 |
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SHIRE PHARMACEUTICALS
GROUP PLC
CONSOLIDATED BALANCE
SHEETS
| Notes | (Unaudited) June 30, 2004 $’000 |
December
31, 2003 $’000 |
||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | 1,307,130 | 1,103,041 | ||||
| Restricted cash | 48,244 | 6,795 | ||||
| Marketable securities | 272,157 | 304,129 | ||||
| Accounts receivable, net | (5 | ) | 171,326 | 194,583 | ||
| Inventories, net | (6 | ) | 50,236 | 43,128 | ||
| Deferred tax asset | 71,935 | 64,532 | ||||
| Prepaid expenses and other current assets | 52,954 | 47,403 | ||||
| Current assets from continuing operations | 1,973,982 | 1,763,611 | ||||
| Current assets from discontinued operations | (4 | ) | 64,969 | 24,096 | ||
| Total current assets | 2,038,951 | 1,787,707 | ||||
| Investments | (7 | ) | 51,902 | 72,975 | ||
| Property, plant and equipment, net | 98,294 | 94,495 | ||||
| Goodwill, net | 222,914 | 221,231 | ||||
| Other intangible assets, net | (8 | ) | 316,789 | 307,882 | ||
| Other non-current assets | 10,359 | 22,420 | ||||
| Long-term assets from continuing operations | 700,258 | 719,003 | ||||
| Long-term assets from discontinued operations | (4 | ) | - | 72,070 | ||
| Total assets | 2,739,209 | 2,578,780 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
| Current liabilities: | ||||||
| Current installments of long-term debt | (9 | ) | 370,483 | 290 | ||
| Accounts payable and accrued expenses | 239,401 | 205,779 | ||||
| Other current liabilities | 41,275 | 37,127 | ||||
| Current liabilities from continuing operations | 651,159 | 243,196 | ||||
| Current liabilities from discontinued operations | (4 | ) | 14,971 | 10,479 | ||
| Total current liabilities | 666,130 | 253,675 | ||||
| Long-term debt | (9 | ) | 5,685 | 376,017 | ||
| Deferred tax liability | 1,571 | 1,400 | ||||
| Other long-term liabilities | 44,222 | 23,783 | ||||
| Long-term liabilities from continuing operations | 51,478 | 401,200 | ||||
| Long-term liabilities from discontinued operations | (4 | ) | - | 779 | ||
| Total liabilities | 717,608 | 655,654 | ||||
4
SHIRE PHARMACEUTICALS
GROUP PLC
CONSOLIDATED BALANCE SHEETS
(continued)
| Notes | (Unaudited) June 30, 2004 $’000 |
December
31, 2003 $’000 |
||||
| Shareholders’ equity: | ||||||
| Common stock of 5p par value: 800,000,000 shares | ||||||
| authorized; and 481,254,798 (December 31, 2003: | 39,828 | 39,521 | ||||
| 477,894,726) shares issued and outstanding | ||||||
| Exchangeable shares: 5,003,587 (December 31, 2003: | ||||||
| 5,839,559) shares issued and outstanding | 231,830 | 270,667 | ||||
| Additional paid-in capital | 1,027,661 | 983,356 | ||||
| Accumulated other comprehensive income | 63,126 | 79,007 | ||||
| Retained earnings | 659,156 | 550,575 | ||||
| Total shareholders’ equity | (11 | ) | 2,021,601 | 1,923,126 | ||
| Total liabilities and shareholders’ equity | 2,739,209 | 2,578,780 | ||||
The financial statements for December 31, 2003 have been restated to reflect the impending disposal of the vaccines business, which has been accounted for as a discontinued operation.
The accompanying notes are an integral part of these consolidated financial statements.
5
SHIRE PHARMACEUTICALS
GROUP PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Notes | 3 months
to June 30, 2004 $’000 |
3 months
to June 30, 2003 $’000 |
6 months
to June 30, 2004 $’000 |
6 months
to June 30, 2003 $’000 |
||||||
| Revenues: | ||||||||||
| Product sales | 255,280 | 245,671 | 519,874 | 500,232 | ||||||
| Licensing and development | 5,482 | 702 | 7,397 | 1,096 | ||||||
| Royalties | 57,657 | 51,836 | 113,802 | 99,599 | ||||||
| Other revenues | 2,541 | - | 3,487 | 7 | ||||||
| Total revenues | 320,960 | 298,209 | 644,560 | 600,934 | ||||||
| Costs and expenses: | ||||||||||
| Cost of product sales | 26,984 | 37,018 | 61,077 | 73,460 | ||||||
| Research and development | 47,375 | 44,830 | 86,001 | 94,773 | ||||||
| Selling, general and administrative | 118,220 | 113,712 | 251,058 | 233,902 | ||||||
| Reorganization costs | (10 | ) | 18,167 | - | 21,980 | - | ||||
| Total operating expenses | 210,746 | 195,560 | 420,116 | 402,135 | ||||||
| Operating income | 110,214 | 102,649 | 224,444 | 198,799 | ||||||
| Interest income | 4,375 | 4,301 | 8,404 | 9,411 | ||||||
| Interest expense | (2,101 | ) | (2,679 | ) | (4,227 | ) | (5,327 | ) | ||
| Other income/(expense), net | 14,081 | (4,919 | ) | 9,262 | (9,773 | ) | ||||
| Total other income/(expense), net | 16,355 | (3,297 | ) | 13,439 | (5,689 | ) | ||||
| Income from continuing operations before | ||||||||||
| income taxes and equity in earnings/(losses) | ||||||||||
| of equity method investees | 126,569 | 99,352 | 237,883 | 193,110 | ||||||
| Income taxes | (38,226 | ) | (25,457 | ) | (67,228 | ) | (49,983 | ) | ||
| Equity in earnings/(losses) of equity method | ||||||||||
| investees | 1,170 | (1,205 | ) | 2,218 | (1,654 | ) | ||||
| Income from continuing operations | 89,513 | 72,690 | 172,873 | 141,473 | ||||||
| Loss from discontinued operations | (4 | ) | (11,349 | ) | (7,205 | ) | (20,135 | ) | (12,922 | ) |
| Expected loss on disposition of discontinued | ||||||||||
| operations | (44,157 | ) | - | (44,157 | ) | - | ||||
| Net income | 34,007 | 65,485 | 108,581 | 128,551 | ||||||
6
SHIRE PHARMACEUTICALS
GROUP PLC
CONSOLIDATED STATEMENTS
OF OPERATIONS
(continued)
(Unaudited)
| Notes | 3 months
to June 30, 2004 |
3 months
to June 30, 2003 |
6 months
to June 30, 2004 |
6 months
to June 30, 2003 |
||||||
| Earnings per share – basic | ||||||||||
| Income from continuing operations | 18.1c | 14.5c | 34.9c | 28.2c | ||||||
| Loss from discontinued operations | (2.3c | ) | (1.4c | ) | (4.1c | ) | (2.6c | ) | ||
| Expected loss on disposition on discontinued | ||||||||||
| operations | (8.9c | ) | - | (8.9c | ) | - | ||||
| (3 | ) | 6.9c | 13.1c | 21.9c | 25.6c | |||||
| Earnings per share – diluted | ||||||||||
| Income from continuing operations | 17.9c | 14.2c | 33.9c | 27.6c | ||||||
| Loss from discontinued operations | (2.3c | ) | (1.4c | ) | (3.9c | ) | (2.5c | ) | ||
| Expected loss on disposition on discontinued | ||||||||||
| operations | (8.8c | ) | - | (8.5c | ) | - | ||||
| (3 | ) | 6.8c | 12.8c | 21.5c | 25.1c | |||||
| Weighted average number of shares: | ||||||||||
| Basic | 496,074,144 | 501,504,962 | 495,896,175 | 501,746,083 | ||||||
| Diluted | 499,241,832 | 522,559,387 | 517,822,110 | 522,652,319 | ||||||
The results for the three and six months ended June 30, 2003 and the three months to March 31, 2004 have been restated to reflect the impending disposal of the vaccines business, which has been accounted for as a discontinued operation.
The accompanying notes are an integral part of these consolidated financial statements.
7
SHIRE PHARMACEUTICALS
GROUP PLC
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
(Unaudited)
| 3
months to June 30, 2004 $’000 |
3
months to June 30, 2003 $’000 |
6
months to June 30, 2004 $’000 |
6
months to June 30, 2003 $’000 |
|||||
| Net income | 34,007 | 65,485 | 108,581 | 128,551 | ||||
| Other comprehensive income: | ||||||||
| Foreign currency translation adjustments | (9,231 | ) | 40,532 | (8,448 | ) | 56,255 | ||
| Unrealized holding (loss)/gain on available for sale | ||||||||
| securities, net of tax | (10,005 | ) | 11,141 | (7,433 | ) | 5,355 | ||
| Comprehensive income | 14,771 | 117,158 | 92,700 | 190,161 | ||||
The components of accumulated other comprehensive income as at June 30, 2004 and December 31, 2003 are as follows:
| June 30, 2004 $’000 |
December 31, 2003 $’000 |
|||
| Foreign currency translation adjustments | 62,973 | 71,421 | ||
| Unrealized holding gain on available for sale securities | 153 | 7,586 | ||
| Accumulated other comprehensive income | 63,126 | 79,007 | ||
The accompanying notes are an integral part of these consolidated financial statements.
8
SHIRE PHARMACEUTICALS
GROUP PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Notes | 6 months
to June 30, 2004 $’000 |
6 months
to June 30, 2003 $’000 |
||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
| Net income from continuing operations | 172,873 | 141,473 | ||||
| Adjustments to reconcile net income to net cash provided by operating | ||||||
| activities: | ||||||
| Depreciation and amortization – included in: | ||||||
| Cost of product sales | 1,284 | - | ||||
| Sales, general and administration | 25,583 | 19,060 | ||||
| (Decrease)/increase in provision for doubtful accounts and discounts | (429 | ) | 1,195 | |||
| Increase in provision for rebates and returns | 25,771 | 8 | ||||
| Stock option compensation | 98 | (24 | ) | |||
| Movement in deferred tax asset | (7,232 | ) | (17,844 | ) | ||
| Equity in (earnings)/losses of equity method | (2,218 | ) | 1,654 | |||
| Write-down of long-term investments | 7,214 | 8,473 | ||||
| Write-down of intangible assets | - | 3,287 | ||||
| Write-down of property, plant and equipment | 1,239 | - | ||||
| Gain on sale of long-term investments | (14,805 | ) | - | |||
| Gain on sale of property, plant and equipment | (78 | ) | - | |||
| Decrease in deferred revenue | (551 | ) | - | |||
| Changes in operating assets and liabilities (net of acquisitions): | ||||||
| Decrease/(increase) in accounts receivable | 23,672 | (57,456 | ) | |||
| (Increase)/decrease in inventory | (6,754 |