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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 March 31, 2005


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
    (Registrant’s telephone number, including area code)
   Basingstoke, Hampshire, England, RG24 8EP    
         (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 April 29, 2005, the number of outstanding ordinary shares of the Registrant was 492,230,825.

1





     SHIRE PHARMACEUTICALS GROUP PLC
Form 10-Q for the three months to March 31, 2005
Table of contents

PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements   4
 
     Condensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004   4
 
     Condensed Consolidated Statements of Operations for the three months to March 31, 2005 and March 31, 2004   5
 
     Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months to March 31, 2005   7
       
     Condensed Consolidated Statements of Comprehensive Income for the three months to March 31, 2005 and March 31, 2004   8
 
     Condensed Consolidated Statements of Cash Flows for the three months to March 31, 2005 and March 31, 2004   9
   
     Notes to the Condensed Consolidated Financial Statements   11
   
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   26
 
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk   36
 
ITEM 4. Controls and Procedures   36
   
PART II OTHER INFORMATION  
 
ITEM 1. Legal Proceedings   36
 
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds   38
 
ITEM 3. Defaults Upon Senior Securities   38
 
ITEM 4. Submission of Matters to a Vote of Security Holders   38
 
ITEM 5. Other Information   38
 
ITEM 6. Exhibits   39
   

2





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 Health Canada's suspension of ADDERALL XR® sales in Canada and the expected product approval dates of MTS (METHYPATCH) (ADHD), SPD503 (ADHD), SPD465 (ADHD), SPD476 (ulcerative colitis), SPD480 (ulcerative colitis) and NRP104 (ADHD), including its scheduling classification by the Drug Enforcement Agency in the United States, Shire’s ability to consummate and benefit from its proposed acquisition of Transkaryotic Therapies Inc. (TKT), Shire's ability to secure new products for commercialization and/or development and other risks and uncertainties detailed from time to time in Shire's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year to December 31, 2004.

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)
CARBATROL® (carbamazepine)
EQUETROTM (carbamazepine)
FOSRENOL® (lanthanum carbonate)
REMINYL® (galantamine hydrobromide) (UK and Republic of Ireland)
XAGRID® (anagrelide hydrochloride)

The following are trademarks of third parties referred to in this filing.


3TC® (lamivudine) (trademark of GlaxoSmithKline (GSK))
AMARYL® (glimepiride) (trademark of Sanofi-Aventis)
DYNEPO™ (epoetin delta) (EPO) (trademark of Sanofi-Aventis)
METHYPATCH® (methylphenidate) (trademark of Noven Pharmaceuticals Inc. (Noven))*
PENTASA® (mesalamine) (trademark of Ferring AS)
RAZADYNE™ (galantamine hydrobromide) (trademark of Johnson & Johnson)
REPLAGAL™ (agalsidase alfa) (trademark of TKT)
REMINYL® (galantamine hydrobromide) (trademark of Johnson & Johnson, excluding UK and Republic of Ireland)
ZEFFIX® (lamivudine) (trademark of GSK)

* Referred to as MTS in this Form 10-Q

3





PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

SHIRE PHARMACEUTICALS GROUP PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

  March 31, December 31,
  2005 2004
  Notes $’000 $’000
 
 
 
ASSETS  
Current assets:  
Cash and cash equivalents   1,141,090 1,111,477
Restricted cash   20,688 21,627
Short-term investments   315,702 324,411
Accounts receivable, net   (3)   231,738 222,546
Inventories   (4)   45,880 41,230
Deferred tax asset   49,546 70,387
Prepaid expenses and other current assets   (5)   90,587 137,271
 
 
Total current assets   1,895,231 1,928,949
       
Investments   57,817 63,267
Property, plant and equipment, net   145,021 131,351
Goodwill   231,841 235,396
Other intangible assets, net   (6)   298,687 309,297
Deferred tax asset   31,715 7,724
Other non-current assets   38,885 38,895
 
 
Total assets   2,699,197 2,714,879
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable and accrued expenses   (7)   308,536 311,231
Loan facility   (2)   22,810 43,162
Other current liabilities   (8)   70,077 77,558
 
 
Total current liabilities   401,423 431,951
 
 
Long-term debt   116 116
Other non-current liabilities   26,402 32,159
 
 
Total liabilities   427,941 464,226
 
 
Commitments and contingencies   (9)  
Shareholders’ equity:  
Common stock, 5p par value; 800,000,000 shares authorized;  
490,767,573 (2004: 484,916,034) shares issued and outstanding   40,525 40,064
Exchangeable shares: 2,926,597 (2004: 4,226,476) shares issued    
and outstanding   135,524 195,830
Treasury stock   (223 ) (264 )
Additional paid-in capital   1,148,674 1,072,407
Accumulated other comprehensive income   115,577 131,939
Retained earnings   831,179 810,677
 
 
Total shareholders’ equity   2,271,256 2,250,653
 
 
Total liabilities and shareholders’ equity   2,699,197 2,714,879
 
 

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

4





SHIRE PHARMACEUTICALS GROUP PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

    Notes 3 months to
March 31,
2005
$’000		 Restated
3 months to
March 31,
2004
$’000
   
Revenues      
Product sales   269,444 264,594
Royalties   58,323 56,145
Licensing and development   3,869 1,915
Other revenues   2,057 946
 
 
Total revenues   333,693 323,600
 
 
Costs and expenses:  
Cost of product sales   33,333 34,093
Research and development   111,532 38,626
Selling, general and administrative   171,209 132,838
Reorganization costs   (2)   2,878 3,813
 
 
Total operating expenses   318,952 209,370
 
 
Operating income   (11)   14,741 114,230
Interest income   9,725 4,029
Interest expense   (15 ) (2,126 )
Other expense, net   (66 ) (4,819 )
 
 
Total other income/(expense), net   9,644 (2,916 )
 
 
Income from continuing operations before income taxes and equity    
in (losses)/earnings of equity method investees   24,385 111,314
Income taxes   (6,803 ) (29,002 )
Equity in (losses)/earnings of equity method investees   (205 ) 1,048
 
 
Income from continuing operations   17,377 83,360
Loss from discontinued operations   - (8,786 )
Loss on disposition of discontinued operations   3,125 -
 
 
Net income   20,502 74,574
 
 

The results for the three months to March 31, 2004 have been restated to reflect the disposal of the vaccines business, which was accounted for as a discontinued operation.

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

5





SHIRE PHARMACEUTICALS GROUP PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

  Notes 3 months to
March 31,
2005 		Restated
3 months to
March 31,
2004
 
 
Earnings per share - basic   (10)
Income from continuing operations   3.5 c 16.8 c
Loss from discontinued operations   - (1.8 c)
Loss on disposal of discontinued operations   0.6 c -
 
 
Net income   4.1 c 15.0 c
 
 
Earnings per share - diluted   (10)
Income from continuing operations   3.5 c 16.3 c
Loss from discontinued operations   - (1.6 c)
Loss on disposal of discontinued operations   0.6 c -
 
 
  4.1 c 14.7 c
 
 
Weighted average number of shares:  
Basic   498,998,570 495,718,205
Diluted   503,669,426 518,119,910
 
 

The results for the three months to March 31, 2004 have been restated to reflect the disposal of the vaccines business, which was accounted for as a discontinued operation.

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

6





SHIRE PHARMACEUTICALS GROUP PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)

Common
Stock
$’000		   Common Stock
No. of shares
’000		   Exchange-
able
shares
$’000		 Exchange-
able
shares
No. of
shares
’000		   Treasury
stock
$’000		 Additional
paid-in
capital
$’000		   Accumu-
lated
other
compre-
hensive
income
$’000		 Retained
earnings
$’000		   Total
share-
holders’
equity
$’000
 
 
 
 
 
 
As of January 1, 2005 40,064   484,916 195,830 4,226 (264 ) 1,072,407   131,939 810,677   2,250,653
Net income for the period -   - - - - -   - 20,502   20,502
Foreign currency translation -   - - - - -   (9,883 ) -   (9,883 )
Exchange of exchangeable shares 277   3,900 (60,306 ) (1,299 ) - 60,029   - -   -
Options exercised 184   1,952 - - - 15,984   - -   16,168
Stock option compensation -   - - - - 49   - -   49
Tax benefit associated with exercise of stock options -   - - - - 205   - -   205
Re-issuance of treasury stock -   - - - 41 -   - -   41
Unrealized loss on available-for-sale securities -   - - - - -   (6,479 ) -   (6,479 )
 
 
 
 
 
 
       
As of March 31, 2005 40,525   490,768 135,524 2,927 (223 ) 1,148,674   115,577 831,179   2,271,256
 
 
 
 
 
 

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

7





SHIRE PHARMACEUTICALS GROUP PLC
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)

  3 months to
March 31,
2005 		3 months to
March 31,
2004
  $’000 $’000
 
Net income   20,502 74,574
Other comprehensive income:  
Foreign currency translation adjustments   (9,883 ) 783
Unrealized holding (losses)/gains on available-for-sale securities   (6,479 ) 2,572
 
Comprehensive income   4,140 77,929
 

The components of accumulated other comprehensive income as of March 31, 2005 and December 31, 2004, are as follows:

  March 31,   December 31,
  2005   2004
  $’000   $’000
Foreign currency translation adjustments   108,339   118,222
Unrealized holding gain on available-for-sale securities   7,238   13,717
Accumulated other comprehensive income   115,577   131,939
     
There are no material tax effects related to the items included above.

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

8





SHIRE PHARMACEUTICALS GROUP PLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

  3 months to
March 31,
2005 		Restated
3 months to
March 31,
2004
  $’000 $’000
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income from continuing operations   17,377 83,360
Adjustments to reconcile net income from continuing operations to net cash    
provided by operating activities:  
Depreciation and amortization   14,465 12,516
Increase in provision for sales deductions   7,946 5,891
Stock option compensation   49 -
Movement in deferred taxes   (3,149 ) (2,150 )
Equity in losses/(earnings) of equity method investees   205 (1,048 )
Write-down of long-term assets   - 7,214
(Gain)/loss on sale of long-term assets   (16 ) 396
Changes in operating assets and liabilities, net of acquisitions:  
Increase in accounts receivable   (10,746 ) (6,183 )
Increase in inventory   (4,658 ) (2,208 )
(Increase)/decrease in prepayments and other current assets   (16,700 ) 7,245
Decrease in other assets   10 5,716
Increase in accounts and notes payable and other liabilities   2,930 21,825
Decrease in deferred revenue   (1,433 ) (551 )
Dividends received from investments   20 -
 
 
Net cash provided by operating activities   6,300 132,023
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Net decrease in short-term investments   7,319 16,821
Movements in restricted cash   939 3,345
Loans made to ID Biomedical Corporation (IDB)   (20,352 ) -
Purchase of long-term investments   (1,814 ) (712 )
Purchase of intangible assets   (19,951 ) -
Purchase of property, plant and equipment   (19,940 ) (7,830 )
Proceeds from sale of long-term investments   - 220
Proceeds from sale of property, plant and equipment   48 -
Proceeds from redemption of IDB subscription receipts   60,000 -
Additional proceeds from sale of the vaccines business   2,236 -
 
 
Net cash provided by investing activities   8,485 11,844
 
 

9





SHIRE PHARMACEUTICALS GROUP PLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

  3 months to
March 31,
2005 		Restated
3 months to
March 31,
2004
  $’000 $’000
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:  
Repayment of long-term debt and capital leases   - (76 )
Proceeds from exercise of options   16,168 3,108
Tax benefit of stock option compensation, charged directly to equity   205 -