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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 September 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 [  ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [X]           No [  ]

As of October 29, 2004, the number of outstanding ordinary shares of the Registrant was 483,889,389.

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 those 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 METHYPATCH® (methylphenidate), XAGRID® (anagrelide hydrochloride) and SPD417/BIPOTROL® (carbamazepine), Shire’s ability to secure new products for development, the implementation of the current reorganization and other risks and uncertainties detailed from time to time in Shire’s filings, including its Annual Report 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 companies within the Shire Group, which are the subject of trademark registrations in certain countries.

ADDERALL XR® (mixed amphetamine salts)
AGRYLIN® (anagrelide hydrochloride)
SPD417/BIPOTROL® (carbamazepine)
CALCICHEW® (calcium carbonate)
CARBATROL® (carbamazepine)
FOSRENOL® (lanthanum carbonate)
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)
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 September 30, 2004
Table of contents
 
  Page
PART I FINANCIAL INFORMATION   4
   
ITEM 1. FINANCIAL STATEMENTS  
     
    Consolidated balance sheets at September 30, 2004 and December 31, 2003   4
     
    Consolidated statements of operations for the three months and nine months ended September 30, 2004   6
        and September 30, 2003  
     
    Consolidated statements of comprehensive income for the three months and nine months ended   8
        September 30, 2004 and September 30, 2003  
     
    Consolidated statements of cash flows for the nine months ended September 30, 2004 and September   9
        30, 2003  
     
    Notes to the consolidated financial statements   11
     
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS   30
OF OPERATIONS  
     
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   43
     
ITEM 4. CONTROLS AND PROCEDURES   43
   
PART II OTHER INFORMATION   44
   
ITEM 1. LEGAL PROCEEDINGS   44
     
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS   45
     
ITEM 3. DEFAULTS UPON SENIOR SECURITIES   45
     
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS   45
     
ITEM 5. OTHER INFORMATION   45
     
ITEM 6. EXHIBITS   45

3






PART I. FINANCIAL INFORMATION      
 
ITEM 1. FINANCIAL STATEMENTS      
 
SHIRE PHARMACEUTICALS GROUP PLC
CONSOLIDATED BALANCE SHEETS
    (Unaudited)
September 30,
2004 		  December 31,
2003
  Notes   $’000   $’000
ASSETS      
Current assets:      
Cash and cash equivalents     1,017,890   1,063,362
Restricted cash     30,901   46,474
Marketable securities     283,090   304,129
Accounts receivable, net   (5)   244,588   194,583
Inventories, net   (6)   45,892   43,128
Deferred tax asset     64,577   64,532
Prepaid expenses and other current assets     94,882   47,403
Current assets from continuing operations     1,781,820   1,763,611
Current assets from discontinued operations   (4)   -   24,096
Total current assets     1,781,820   1,787,707
 
Investments   (7)   108,935   72,975
Property, plant and equipment, net     105,802   94,495
Goodwill, net     222,456   221,231
Other intangible assets, net   (8)   303,713   307,882
Deferred tax asset     22,165   -
Other non-current assets     20,396   22,420
Long-term assets from continuing operations     783,467   719,003
Long-term assets from discontinued operations   (4)   -   72,070
Total assets     2,565,287   2,578,780
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current liabilities:      
Current installments of long-term debt   (10)   5,907   290
Accounts payable and accrued expenses   (9)   275,851   205,779
Other current liabilities     148,607   37,127
Current liabilities from continuing operations     430,365   243,196
Current liabilities from discontinued operations   (4)   -   10,479
Total current liabilities     430,365   253,675
 
Long-term debt, excluding current installments   (10)   116   376,017
Deferred tax liability     -   1,400
Other long-term liabilities     26,870   23,783
Long-term liabilities from continuing operations     26,986   401,200
Long-term liabilities from discontinued operations   (4)   -   779
Total liabilities     457,351   655,654

4




SHIRE PHARMACEUTICALS GROUP PLC
CONSOLIDATED BALANCE SHEETS (continued)
 
(Unaudited)
September 30,
2004
December 31,
2003
  Notes   $’000   $’000
Shareholders’ equity:      
Ordinary shares of 5p par value: 800,000,000 shares        
authorized; and 483,800,689 (December 31, 2003:       40,063   39,521
477,894,726) shares issued and outstanding      
         
Exchangeable shares: 4,292,816 (December 31, 2003:        
5,839,559) shares issued and outstanding     198,810   270,667
Additional paid-in capital     1,062,978   983,356
Accumulated other comprehensive income     78,794   79,007
Retained earnings     727,291   550,575
Total shareholders’ equity   (12)   2,107,936   1,923,126
Total liabilities and shareholders’ equity     2,565,287   2,578,780

The financial statements for December 31, 2003 have been restated to reflect the 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)
 
 
    3 months to
September 30,
2004 		    3 months to
September 30,
2003 		    9 months to
September 30,
2004 		    9 months to
September 30,
2003 		 
  Notes   $’000     $’000     $’000     $’000  
 
Revenues:                
Product sales     283,723     232,282     803,597     732,514  
Licensing and development     2,820     1,355     10,217     2,451  
Royalties     56,199     49,735     170,001     149,334  
Other revenues     2,167     6     5,654     13  
 
Total revenues     344,909     283,378     989,469     884,312  
 
Costs and expenses:                
Cost of product sales     38,933     32,700     100,010     106,160  
Research and development     57,759     47,277     143,760     142,050  
Selling, general and administrative     125,102     105,828     376,160     339,730  
Reorganization costs   (11)   10,061     -     32,041     -  
 
Total operating expenses     231,855     185,805     651,971     587,940  
 
Operating income     113,054     97,573     337,498     296,372  
 
Interest income     5,697     3,688     14,101     13,099  
Interest expense     (8,032 )   (1,984 )   (12,259 )   (7,311 )
Other (expense)/income, net     (4,859)     (788 )   4,403     (10,561 )
 
Total other (expense)/income, net     (7,194)     916     6,245     (4,773 )
 
Income from continuing operations                
before income taxes and equity in                
earnings/(losses) of equity method                
investees     105,860     98,489     343,743     291,599  
Income taxes     (29,960)     (25,139 )   (97,188 )   (75,122 )
Equity in earnings/(losses) of equity                  
method investees     1,140     (45 )   3,358     (1,699 )
 
Income from continuing operations     77,040     73,305     249,913     214,778  
Loss from discontinued operations   (4)   -     (8,686 )   (20,135 )   (21,608 )
Loss on disposition of discontinued              
operations     -     -     (44,157 )   -  
 
Net income     77,040     64,619     185,621     193,170  
 
                           

6





SHIRE PHARMACEUTICALS GROUP PLC
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
(Unaudited)
 
 
    Notes     3 months to
September 30,
2004 		    3 months to
September 30,
2003 		    9 months to
September 30,
2004 		    9 months to
September 30,
2003 		 
 
Earnings per share – basic                    
Income from continuing operations         15.5c     14.8c     50.4c     43.0c  
Loss from discontinued operations         -     (1.7c )   (4.1c )   (4.3c )
Loss on disposition on discontinued                              
operations         -     -     (8.9c)     -
 
    (3)     15.5c     13.1c     37.4c     38.7c  
 
Earnings per share – diluted                    
Income from continuing operations         15.3c     14.4c     49.2c     42.0c  
Loss from discontinued operations         -     (1.6c )   (3.9c )   (4.1c )
Loss on disposition on discontinued                              
operations         -     -     (8.6c )   -
 
 
    (3)     15.3c     12.8c     36.7c     37.9c  
 
Weighted average number of shares:                    
Basic         496,474,005     494,827,334     496,090,191     499,414,490  
Diluted         509,777,052     515,826,822     515,070,302     520,530,702  
 

The results for the three and nine months ended September 30, 2003 and the three months to March 31, 2004 have been restated to reflect the 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
September 30,
2004 		    3 months to
September 30,
2003 		    9 months to
September 30,
2004 		    9 months to
September 30,
2003
  $’000     $’000     $’000     $’000
Net income   77,040     64,619     185,621     193,170
 
Other comprehensive income:              
Foreign currency translation adjustments   12,973     6,010     4,525     62,265
Unrealized holding gain/(loss) on available for                
sale securities, net of tax   2,695     (688 )   (4,738 )   4,667
Comprehensive income   92,708     69,941     185,408     260,102
 
 
The components of accumulated other comprehensive income as at September 30, 2004 and December 31, 2003 are as follows:
 
          September 30,
2004 		    December 31,
2003
          $’000     $’000
Foreign currency translation adjustments           75,946     71,421
Unrealized holding gain on available for sale securities             2,848     7,586
 
Accumulated other comprehensive income           78,794     79,007

The accompanying notes are an intergral part of these consolidated financial statements.

8



SHIRE PHARMACEUTICALS GROUP PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

      9 months to
September 30,
2004 		    9 months to
September 30,
2003 		 
    Notes   $’000     $’000  
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income from continuing operations       249,913     214,778  
Adjustments to reconcile net income to net cash provided by operating          
activities:          
  Depreciation and amortization:          
     Cost of product sales       1,965     -  
     Sales, general and administration       40,474     28,439  
  (Decrease)/increase in provision for doubtful accounts and discounts       (2,561 )   599  
  Increase in provision for rebates and returns       42,112     6,424  
  Stock option compensation - options       165     (24 )
  Movement in deferred tax asset       (23,610 )   (17,397 )
  Equity in (earnings)/losses of equity method       (3,358 )   1,699  
  Write-down of long-term investments       13,899     8,472  
  Other movement on long-term investments       (1,202 )   -  
  Write-down of property, plant and equipment       1,239     5,521  
  Write-down of intangible assets       5,456     14,437  
  Gain on sale of long-term investments       (14,805 )   -  
  Loss/(gain) on sale of property, plant and equipment       8     (104 )
  Loss on sale of assets held for resale       325     -  
Changes in operating assets and liabilities:          
  Increase in accounts receivable       (49,261 )   (35,993 )
  Increase in inventory       (2,864 )   (864 )
  Decrease/(increase) in prepayments and other current assets       2,199     (10,328 )
  Decrease in other assets       2,023     2,522  
  Increase /(decrease) in accounts and notes payable and other liabilities       47,322     (3,528 )
  Decrease in deferred revenue       (288 )   -  
 
Net cash provided by operating activities       309,151     214,653  
 
CASH FLOWS FROM INVESTING ACTIVITIES:          
Movement in short-term deposits       21,039     102,940  
Movements in restricted cash       15,573     933  
Loans made to IDB       (23,820 )   -  
Purchase of long-term investments       (5,720 )   (1,475 )
Purchase of property, plant and equipment       (24,840 )   (35,270 )
Purchase of intangible assets       (12,385 )   (36,108 )
Proceeds from sale of a business       30,000     -  
Proceeds from sale of long-term investments       26,733     -  
Proceeds from sale of property, plant and equipment       444     852  
Proceeds from assets held for resale       11,289     -  
Distribution from long-term investments       1,202     -  
Dividend received from equity method investees       4,043     2,289  
 
Net cash provided by investing activities       43,558     34,161  
 
                 

 

9





SHIRE PHARMACEUTICALS GROUP PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
 
 
      9 months to
September 30,
2004 		    9 months to
September 30,
2003 		 
    Notes   $’000     $’000  
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:          
Redemption of 2% convertible loan notes       (370,109 )   (29,775 )
Repayment of long-term debt and capital leases       (171 )   (167 )
Proceeds from issue of common stock, net       611     -  
Proceeds from exercise of options       7,531     2,381  
Payments for redemption of common stock       -     (52,392 )
 
Net cash used in financing activities       (362,138 )   (79,953 )
 
Effect of foreign exchange rate changes on cash and cash equivalents from          
continuing operations       2,295     19,000  
 
Net (decrease)/increase in cash and cash equivalents       (7,134 )   187,861  
Cash flows used in discontinued operations       (38,338 )   (22,769 )
 
Net (decrease)/increase in cash and cash equivalents       (45,472 )   165,092  
Cash and cash equivalents at beginning of period       1,063,362     845,141  
 
Cash and cash equivalents at end of period       1,017,890     1,010,233  
 
 
The results for the three and nine months ended September 30, 2003 and the three months to March 31, 2004 have been restated to reflect the disposal of the vaccines business, which has been accounted for as a discontinued operation.
           
Supplemental information associated with continuing operations:          
      9 months to
September 30,
2004 		    9 months to
September 30,
2003 		 
    Notes   $’000     $’000  
 
 
NON-CASH ACTIVITIES:          
Proceeds from sale of a business:          
4,931,864 shares of IDB       60,000     -  
Escrow funds       30,000     -  
 

The accompanying notes are an integral part of these Consolidated Financial Statements.

10