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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 (I.R.S. Employer Identification No.)
incorporation or organization)
Hampshire International Business Park, Chineham, Basingstoke, RG24 8EP
- -------------------------------------------------------------- --------
Hampshire, England (Zip Code)
-------------------
(Address of principal executive offices)
44 1256 894 000
---------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
American Depository Shares,
each representing 3 Ordinary
Shares 5 pence par value per share Nasdaq National Market
- ---------------------------------- ----------------------
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
1
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 (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference to Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 26, 2002, the aggregate market value of the ordinary shares,
(pound)0.05 par value per share of the Registrant held by non-affiliates was
approximately $3,542 million.
As of March 26, 2002, the number of outstanding ordinary shares of the
Registrant was 482,605,799.
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. The 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, our 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 and
commercialization, the impact of competitive products, government regulation and
approval, and other risks and uncertainties detailed from time to time in our
filings with the Securities and Exchange Commission including this annual report
on Form 10-K for the year ended December 31, 2001.
3
ITEM 1: Business
(A) General Development of Business
We are an international specialty pharmaceutical company with a strategic focus
on three therapeutic areas: central nervous system disorders, oncology and
anti-infectives. Our strategy is further supported by two technology platforms,
drug delivery and biologics.
We have sales and marketing subsidiaries with a portfolio of products targeting
the U.S., Canada, the U.K., the Republic of Ireland, France, Germany, Italy and
Spain. We also cover other significant pharmaceutical markets indirectly through
distributors. We operate and manage our business within three individual
operating segments: U.S., International and global research and development.
Within these segments, revenues are derived primarily from three sources: sales
of products by our own sales and marketing operations, royalties and licensing
and development fees.
We have expanded our business both organically and through acquisitions, the
most recent of which was our merger with BioChem Pharma, Inc. (BioChem) in May
2001.
We were incorporated under the laws of England and Wales on January 1, 1994. As
part of a recapitalization, we acquired the entire share capital of Shire
Holdings Ltd on December 19, 1994, including the operations of Rybar
Laboratories Ltd, a U.K. based sales and marketing company acquired by our
predecessor in July 1992. In September 1995, we acquired Imperial Pharmaceutical
Services Ltd (subsequently renamed Shire Pharmaceutical Contracts Ltd). We
acquired Pharmavene, Inc. (subsequently renamed Shire Laboratories, Inc.) in
March 1997 and Richwood Pharmaceutical Company, Inc. (subsequently renamed Shire
Richwood, Inc. and then Shire US Inc.) in August 1997.
In October 1999, we acquired the German, French and Italian sales and marketing
subsidiaries of Fuisz Technologies Ltd (the subsidiaries were subsequently
renamed Shire Deutschland, Shire France and Shire Italia respectively). We
merged with Roberts Pharmaceutical Corporation (Roberts) in December 1999.
Following our merger, the U.S. sales and marketing operations of Roberts were
merged into those of Shire Richwood, Inc., now Shire US Inc. In May 2000, we
established a Representative Office in Singapore to effectively manage our
activities in the Pacific Rim markets. In June 2000, we established a sales and
marketing subsidiary in Spain, Shire Pharma Iberica.
We are a public limited company organized under the laws of England and Wales.
Our principal executive offices are located at Hampshire International Business
Park, Chineham, Basingstoke, Hampshire, RG24 8EP, England and our telephone
number is + 44 1256 894000.
In this report, the term the "Company" or the "Group" refers to Shire
Pharmaceuticals Group plc and its subsidiaries unless the context indicates
otherwise.
(B) Financial Information about Industry Segments
Substantially all of our revenues, operating profits or losses and assets are
attributable to one line of business, the acquisition, development and sale of
pharmaceutical products within three individual operating segments: U.S.,
International and global research and development.
4
(C) Description of Business
Strategy and Approach
Our business model has five levels of focus: specialist doctors, business,
functional, geographic, and therapeutic areas and platform technologies.
Specialist doctors
We have a particular interest in innovative therapies. The term "specialty"
refers to products prescribed by specialist doctors as opposed to those
prescribed by primary care or general practitioners. We target specialists
because they usually lead innovations in prescribing. Therefore, we target
or shall target the main specialist doctors who prescribe within the
following therapeutic areas: central nervous system disorders, oncology and
anti-infectives.
Business
As a specialty pharmaceutical company, our strategy is to target a limited
but specific audience and to maximize sales through a comparatively small
sales force.
The concept of marketing to specialists allows us to clearly define our
financial goals, which include high gross profit and operating margin
targets, with the aim to reach both annual sales growth and investment in
research and development that is above the industry average.
Functional
We focus on specific functional areas of the business that are identified
as being key drivers for success, such as Research, Development and
Marketing.
On May 11, 2001 we completed our merger with BioChem, which added seven
pre-Phase II projects to our portfolio. The merger strengthened our
in-house early phase development capabilities and added two valuable
sources of new projects, our Biologics business and our Lead Optimization
capability located both in Canada and the U.S.
In order to reduce financial and business risk, we maintain a careful and
objective discipline in our approach to R&D risk management by weighting
our portfolio of projects towards those projects viewed as low to medium
risk. Part of this strategy is the acquisition of projects at a given stage
of development as such in-licensing opportunities typically reduce our
exposure to the high risks associated with the early stages of research and
development. We believe, as a consequence, the average risk profile of
projects in our R&D portfolio is targeted to be lower than the industry
average.
Our strategy also includes the identification of off-patent products that
could be enhanced using the technology of our oral drug delivery company,
Shire Laboratories Inc., based in Maryland, U.S. Examples of such projects
are ADDERALL XR(TM) and CARBATROL XR(TM). We seek to obtain patent
protection through our drug delivery expertise wherever possible.
Another very important source of growth is our "search" function. This
function has played a key role in enabling the identification of new
projects, products and merger and acquisition (M&A) opportunities. We have
grown both organically and through six mergers and acquisitions during the
past seven years.
5
Our Sales and Marketing function is another essential source of our
success. We take pride in our well-trained and highly-motivated sales force
that has, through the success of our main marketed products and the recent
launch of ADDERALL XR, demonstrated outstanding professionalism and
performance.
Geographic
Our aim is to market our products using our own sales forces in eight major
pharmaceutical markets of the world. We have sales and marketing
subsidiaries with a portfolio of products targeting the U.S., Canada, the
U.K., the Republic of Ireland (R.O.I.), France, Germany, Italy and Spain
with plans to add Japan by 2004. We intend to cover other significant
pharmaceutical markets indirectly through distributors. We have already
appointed such distributors in territories including Australia, Denmark,
Finland, Hong Kong, Israel, Malaysia, Norway, Phillipines, Singapore, South
Africa, South Korea and Thailand.
Therapeutic areas and platform technologies
We focus on three therapeutic areas: central nervous system disorders,
oncology and anti-infectives, with two platform technologies: drug delivery
and biologics. However, we continue to market two of our major products in
the metabolic diseases and gastroenterology specialist field.
Sales and Marketing
Our sales and marketing operations in the U.S., the U.K., the Republic of
Ireland, continental Europe and Canada presently consist of 654 sales
representatives. We believe that our sales and marketing infrastructure can be
expanded rapidly to meet product opportunities.
(a) Currently marketed products
The table below lists our key currently marketed products by therapeutic area,
indicating the owner or licensor of the product, the marketer of the product and
the territory in which the product is being marketed.
Products Principal Indication(s) Owner/Licensor Marketed By/Relevant
Territory
Treatments for central nervous system disorders
Adderall XR(TM) ADHD Shire Shire - U.S.
Adderall(TM) ADHD Shire Shire - U.S.
Carbatrol(TM) Epilepsy Shire Shire - U.S.
REMINYL(TM) Alzheimer's disease Shire Shire and Janssen - U.K. and
R.O.I.
Janssen - RoW
6
Treatments for infections
3TC*/EPIVIR* HIV/AIDS Shire** Shire and GSK -Canada
GSK - RoW
COMBIVIR* HIV/AIDS Shire** Shire and GSK -Canada
GSK - RoW
TRIZIVIR* HIV/AIDS Shire** Shire and GSK -Canada
GSK - RoW
ZEFFIX* / EPIVIR-HBV* Hepatitis B infection Shire** Shire and GSK -Canada
/HEPTOVIR*(1) GSK - RoW
Oncology treatments
Agrylin(TM) Elevated blood platelets Shire Shire - U.S. and Canada
Treatments for other diseases
ProAmatine(TM) Orthostatic hypotension Nycomed Shire - U.S. and Canada
Amatine(TM)
Pentasa(TM) Ulcerative colitis Ferring Shire - U.S.
CALCICHEW(TM) range Adjunct in osteoporosis Nycomed Shire - U.K. and R.O.I.(2)
1 This is not a comprehensive list of trademarks for this product as various
others are used in smaller markets.
2 Also distributed in various export markets on our behalf.
TM Our trademarks or those of our subsidiaries.
* Trademarks of GlaxoSmithKline (GSK)
** GSK is the owner / licensor of some rights in these products.
Treatments for central nervous system disorders
Adderall XR and Adderall. Attention Deficit Hyperactivity Disorder (ADHD) is a
central nervous system disorder, characterized by varying degrees of
inattention, impulsivity and hyperactivity. It was thought to be a childhood
disorder, although there is increasing evidence to show that it also affects
adults. According to IMS America, the U.S. market for ADHD treatments was
approximately $1,019 million for the year ended December 31, 2001. It is
estimated that between 3% and 7% of children in the U.S. suffer from the
condition.
U.S. Drug Enforcement Agency (DEA) Schedule II products, specifically
methylphenidate and amphetamines, are currently the only approved first line
treatments for ADHD available. Our products, ADDERALL XR and ADDERALL, contain a
combination of four amphetamine salts. ADDERALL was launched in 1996 and was the
ADHD brand leader at the end of 2001. Adderall XR is a patented formulation of
Adderall that uses Shire Laboratories' Microtrol(TM) delivery technology and is
designed to provide an all day treatment with one morning dose. It can be
administered as a capsule or sprinkled on food. In the ADHD market, a once a day
formulation is accepted to be an important benefit as it:
o provides all day control symptoms;
o avoids the need for medication to be taken at school;
o reduces the risk of diversion;
o allows parental control of medication;
o offers potential for improved compliance;
o decreases social stigma; and
o eases the burden on school nurses.
7
A New Drug Application (NDA) for ADDERALL XR was submitted to the U.S. Food and
Drug Administration (FDA) on October 3, 2000. An approvable letter was received
on August 3, 2001 followed by the approval letter on October 12, 2001. In
November 2001 a formulation and pharmaceutical composition patent relating to
ADDERALL XR was issued by the U.S. Patent and Trademark Office, expiring in
2018. The product was launched by promotion to doctors on November 5, 2001, and
according to NDC Health had already achieved 14.5% share of the U.S.
prescription ADHD market for the week ending March 15, 2002.
Sales of ADDERALL XR and ADDERALL during 2001 were $350.3 million, representing
approximately 40% of our total revenues. As a result, factors adversely
affecting the sale or production of ADDERALL XR and ADDERALL would have a
material adverse effect on our financial condition and results of operation.
Factors which could adversely affect sales of Adderall XR and ADDERALL include:
o issues impacting the production of ADDERALL XR and ADDERALL or our
supply of amphetamine salts;
o development and marketing of competitive pharmaceuticals (including
generic versions of AdderalL - see below);
o technological advances (including the introduction of competing
non-scheduled ADHD treatments);
o changes in reimbursement policies of third-party payers;
o government action / intervention;
o marketing or pricing actions by our competitors;
o the occurrence of adverse reactions to AdderalL XR or ADDERALL;
o public opinion towards ADHD treatments;
o product liability claims; or
o changes in prescription writing practices.
On February 11, 2002 Barr Laboratories Inc. announced FDA approval to market a
generic version of ADDERALL. We are also aware that a number of other
pharmaceutical companies may have filed abbreviated New Drug Applications
(ANDA's) with the FDA and are seeking approval for a generic version of ADDERALL
which no longer has marketing exclusivity in the U.S.
Carbatrol. Approximately 2.5 million people in the U.S. suffer from epilepsy, a
disorder that is characterized by an episodic disturbance of consciousness
during which seizure activity occurs in the brain. Carbatrol is an extended
release formulation of carbamazepine that can be administered as a capsule or
sprinkled on food, and delivers steady blood levels of drug over 24 hours when
taken twice daily. When administered in an immediate release formulation,
carbamazepine requires dosing three to four times a day. CARBATROL therefore
provides advantages for patients, aiding compliance. Carbamazepine is one of the
most widely prescribed antiepileptic drugs, accounting for approximately 12% of
total U.S. anti-epileptic prescriptions written in 2001. Prescription numbers
for Carbatrol increased from 658,000 in 2000 to 853,000 in 2001.
The FDA approved CARBATROL on September 30, 1997 for marketing in the U.S. The
product was originally out-licensed to Athena, a subsidiary of Elan Corporation
plc. In December 1997, we reacquired the worldwide rights to Carbatrol, together
with inventory and certain plant and equipment for $25.0 million. We launched
Carbatrol in the U.S. in June 1998. On March 31, 1999, we terminated our
promotion agreement with Athena. In 1994, we obtained a patent in the U.S.
covering the formulation of Carbatrol with an expiration date of 2011. Patent
applications covering this technology are pending in other countries.
8
We outsource the manufacture and packaging of CARBATROL. In 2001, the
third-party manufacturer that encapsulates and packages CARBATROL has been
unable to produce sufficient quantities to maintain adequate stock of product in
the distribution pipeline to support the current growth. We believe this supply
issue is temporary and will be resolved through additional production capacity
in 2002.
In the year ended December 31, 2001, sales of CARBATROL were $36.8 million
representing approximately 4% of our total revenues.
REMINYL. Alzheimer's disease is characterized by loss of memory, particularly of
recent events, confusion and disorientation, followed by severe intellectual
disturbances, personality changes and emotional disintegration. It is
progressive, with death usually occurring within five to nine years following
the onset of symptoms. It is estimated that approximately 8 million people in
the U.S. and Western Europe suffer from Alzheimer's disease.
REMINYL, a new treatment for mild to moderate Alzheimer's disease, was developed
with Janssen Research Foundation under a co-development and licensing agreement.
The first regulatory approval within the European Union (EU) for REMINYL was
received from Sweden on March 3, 2000. In July 2000, REMINYL successfully
completed the EU Mutual Recognition Procedure and was launched in the U.K. in
September 2000. This was followed by launches in a number of other countries
during late 2000 and 2001. In the U.S., Janssen submitted an NDA on September
29, 1999. An approvable letter was issued by the FDA in August 2000, followed by
an approval letter on February 28, 2001. REMINYL was launched in the U.S. in May
2001 by Janssen Pharmaceutical and Ortho-McNeil Pharmaceutical.
The European Summary of Product Characteristics indicates that REMINYL has a
novel dual mechanism of action. Decreased levels of acetylcholine, caused by the
death of acetylcholine neurons, are known to be related to the symptoms of
Alzheimer's disease. In addition to preserving levels of acetylcholine in the
brain by blocking the action of the enzyme acetylcholinesterase, which
inactivates acetylcholine, laboratory research suggests that REMINYL may also
act on the brain's nicotinic receptors. The modulation of these receptors may
lead to the release of more acetylcholine. Janssen Research Foundation is
investigating the clinical significance of this characteristic.
REMINYL was launched using natural galantamine extracted from daffodil bulbs.
Regulatory approval for the synthetic manufacture of galantamine was gained in
2001 in Europe and the U.S. We will be relying on Janssen and Waldheim
Pharmaceutica for the supply of synthetic galantamine of suitable quality and
quantity and there can be no assurance that adequate supplies will be available.
Janssen are also developing REMINYL for additional indications including
vascular and mixed dementias.
Treatments for infections
Following our merger with BioChem, the anti-infective area has become of
strategic importance to us, and we now have a strong portfolio of marketed
antiviral medications.
3TC/EPIVIR, COMBIVIR, TRIZIVIR. The human immunodeficiency virus (HIV) is a
retrovirus that has been isolated and recognized as the causative agent of
acquired immunodeficiency syndrome (AIDS). There are many strains of HIV
throughout the world, although they all use the same mechanism of action. The
virus' RNA is converted to DNA using the reverse transcriptase enzyme and the
DNA is integrated into the host organisms' genome, where it is able to
replicate.
According to UNAIDS, in December 2001 there were more than 40 million adults and
children living with the HIV infection worldwide. Estimates suggest that there
are 16,000 new infections each day.
9
Lamivudine, which was originally discovered by BioChem and licensed to Glaxo
Wellcome in 1990, is the key to the success of this HIV/AIDS treatment
franchise. We receive royalties on sales of lamivudine (now marketed in various
single and combination formulations, including 3TC/EPIVIR, COMBIVIR and
TRIZIVIR), except in Canada, where we have a commercialization partnership with
GlaxoSmithKline (GSK). These products are now launched widely.
ZEFFIX. Hepatitis B (HBV) virus is the causative agent of both acute and chronic
forms of hepatitis B, a liver disease which is a major cause of death and
disease throughout the world. Over 2 billion people worldwide have been at some
point infected with the HBV virus. Of these 2 billion, there are over 350
million people chronically infected, 75% of whom are found in the Asia-Pacific
region (World Health Organization (WHO) 1996). There are some 25 million chronic
carriers of HBV in industrialized countries. These chronic carriers are at risk
of developing chronic active hepatitis, which kills up to 2 million persons per
annum. Vaccines to prevent hepatitis B are currently available, however, they
have not been shown to be effective in those already infected with the virus.
Despite the availability of these vaccines for more than a decade, the incidence
of HBV infection in the U.S. has increased.
Lamivudine has also been shown to be effective against the HBV virus and is
marketed as ZEFFIX and various other trademarks around the world. In an
agreement similar to that for lamivudine in HIV/AIDS, we receive royalties on
sales of lamivudine by GSK for HBV except in Canada, where we have a
commercialization partnership with GSK. Please refer to Note 19b (iv) to the
consolidated financial statements for further details in relation to lamivudine.
Oncology treatments
Agrylin. Thrombocythemia is a chronic disorder associated with increased or
abnormal production of blood platelets. Since platelets are involved in blood
clotting, their abnormal production can result in the inappropriate formation of
blood clots or in bleeding, with the consequence of an increased risk of
gastrointestinal bleeding, heart attack and stroke.
In January 1999, we purchased the intellectual property rights to Agrylin from
Bristol-Myers Squibb for $35.0 million.
In 1991, we obtained an exclusive worldwide license from Bristol-Myers Squibb to
develop, market and sell Agrylin (anagrelide) as an oral treatment for
thrombocythemia. In March 1997, the NDA for Agrylin was approved. We also market
AGRYLIN in Canada and through distributors in South Korea, Switzerland, Israel,
South Africa and Australia. There is no other U.S. or Canadian approved
treatment available for thrombocythemia. Other current therapies used to reduce
excessive platelet production may have disadvantages, such as possible links to
leukemogenesis and leukopenia.
In December 1998, we received approval for an expanded indication for AGRYLIN
for thrombocytosis secondary to all myeloproliferative diseases, including
polycythemia vera and chronic myelogenous leukemia.
In the year ended December 31, 2001, our worldwide sales of Agrylin were $85.5
million, representing approximately 10% of our total revenues.
Treatments for other diseases
CALCICHEW range. Osteoporosis is characterized by a progressive loss of bone
mass that renders bone fragile and liable to fracture. More than 3 million
people in the U.K. are estimated to suffer from this condition. Osteoporosis
affects both sexes but is more rapid and profound in women, largely as a result
of the decline in estrogen production following menopause.
10
Our principal products for the adjunctive treatment of osteoporosis and for the
treatment of hyper phosphatemia are the CALCICHEW range of calcium and
calcium/vitamin D supplements which are sold mainly in the U.K. and the Republic
of Ireland. Our CALCICHEW range includes, among others, CALCICHEW(TM), CALCICHEW
D3(TM) and CALCICHEW D3 FORTE(TM), used as adjuncts to other therapies and which
we believe are more palatable than alternative products. We hold a leading
position in the (pound)20 million (approximately $29 million) U.K. prescription
calcium market.
ProAmatine. In 1996, PROAMATINE was given accelerated approval by the FDA as a
new drug for life-threatening illnesses and is currently the only FDA approved
treatment for postural hypotension. This is a condition involving low blood
pressure upon assuming an upright posture, resulting in dizziness, weakness or
unconsciousness. ProAmatine has been designated as an orphan drug by the FDA,
giving it a seven year period of market exclusivity in the U.S., which will
expire at the end of 2003. Sales of ProAmatine in 2001 were $38.0 million,
representing approximately 4% of our total revenues.
Pentasa. Ulcerative colitis is a chronic, relapsing disease in which part or all
of the large intestine becomes inflamed and often ulcerated.
In April 1998, exclusive U.S. marketing rights to Pentasa were acquired from
Hoechst Marion Roussel for $136.0 million. This drug addresses a large market of
over 2 million patients in the U.S. Sales of Pentasa in 2001 were $75.5 million,
representing approximately 9% of our total revenues.
(b) Products under development
We seek to maintain a broad and balanced approach to our development of new
products by, among other things, leveraging third-party research and development
expertise, exploiting investment in research collaborations and licensing
compounds from third parties and developing them through the pre-clinical and
clinical phases with a view to marketing them by our own sales and marketing
organization. Recognizing the risks in drug development, our policy is to manage
this by maintaining a broad range of products in different development phases
and with varying inherent levels of risk, from low risk reformulations of off
patent approved compounds, through to higher risk new chemical entities. We aim
to optimize the level of fixed overhead by using contract research organizations
to manage multi-center and / or international clinical trials on a day-to-day
basis. In the year ended December 31, 2001, we spent $171.0 million on research
and development, representing approximately 19% of our total revenues.
The table below lists our key products under development by therapeutic area,
indicating their most advanced development status for any market and their
territorial rights.
Product(s) Principal indication(s) Most advanced development Shire's
status territorial rights
Treatments for central nervous system disorders
DIRAME(TM) Analgesia Phase III Global
SPD 417 Bipolar disorder Phase III Global
SPD 420 ADHD Phase II Global (option)
SPD 421 Epilepsy Phase II Global
SPD 451 Parkinson's disease Preclinical Global
SPD 452 Epilepsy Preclinical Global
SPD 453 Epilepsy Preclinical Global
SPD 473 Parkinson's disease Phase IIa Global
11
SPD 474 Parkinson's disease Preclinical Global
SPD 503 ADHD Phase II Global
Treatments for infections
SPD 701 Influenza vaccine Phase I Global
SPD 703 Streptococcus Preclinical Global
pneumoniae vaccine
SPD 704 Neisseria meningitidis Phase I Global
vaccine
SPD 705 Pseudomonas aeruginosa Preclinical Global
vaccine
SPD 707 Influenza vaccine Phase II complete(1) Global
SPD 754 HIV/AIDS Phase I Global
SPD 756 HIV/AIDS Phase I Global
Oncology treatments
AGRYLIN(TM)/XAGRID(TM) Essential Phase III complete(2) Global
Thrombocythemia
TROXATYL(TM) Leukemia Phase II Global
TROXATYL Pancreatic cancer Phase I Global
SPD 427 Oncology Phase I Global
Treatments for other diseases
FOZNOL(TM)/ FOZRENOL(TM)(5) Hyperphosphataemia In registration in EU(3) Global
PENTASA (500mg) Ulcerative colitis Phase II complete U.S.
Balsalazide Ulcerative colitis Phase II complete(4) Certain countries within Europe
1 This project is marketed in Canada under the trademark FLUVIRAL S/F(TM) and
is under development for markets outside of Canada.
2 This project is marketed in the U.S. and Canada under the trademark AGRYLIN
and is currently under development for Europe.
3 The U.S. NDA for FOZNOL is being prepared and is planned to be submitted to
the FDA in Q2 2002.
4 This project is marketed in the U.K. by us and in various European
countries by our distributors and is currently under development for
various other European markets.
5 This project is referred to as FOZNOL throughout this document.
Treatments for central nervous system disorders
12
DIRAME(TM) for analgesia
The analgesic market is worth approximately $3.5 billion in the U.S.
DIRAME is our orally administered centrally-acting analgesic for treating
moderate to moderately severe pain. Exclusive worldwide rights for this product
were acquired from Bayer. We believe that DIRAME could have a favorable
side-effect profile especially in terms of low addiction potential, although
this needs to be demonstrated in clinical studies. Phase III trials in
osteoarthritis were completed during 2001 and further studies are ongoing.
SPD 417 for bipolar disorder
SPD 417 is a project that capitalizes on the success of CARBATROL, which we
currently market in the U.S. for the treatment of epilepsy. There is anecdotal
evidence that carbamazepine, the active ingredient in CARBATROL, may work as a
treatment for bipolar disorder. The aim of this project is to investigate the
efficacy of CARBATROL in clinical trials for bipolar disorder with a view to
gaining FDA approval for this indication. The project is currently in Phase III.
ADHD products
Development of ADDERALL XR was successfully completed in 2001 and culminated in
the U.S. launch on November 5, 2001.
We have two further projects in development for ADHD; SPD 420 and SPD 503.
SPD 420
In April 2000, we announced the signing of an option agreement with Cortex
Pharmaceuticals, Inc. (Cortex). Under the terms of the agreement, we are
conducting a double-blind, placebo-controlled evaluation of the AMPAKINE* SPD
420, in ADHD patients. This study was initiated in Q3 2001 and, if successful,
will give us the option to acquire the global rights for the product. If we
elect to execute this agreement, we will bear all future developmental costs and
Cortex will receive an upfront fee, milestone payments based on successful
clinical and commercial development, research support for additional AMPAKINES
and royalties on sales.
SPD 420 is likely to lead to a non scheduled compound that will assist in
treating certain subsets of symptoms in both children and adult ADHD patients.
* Trademark of Cortex
SPD 503
SPD 503, another potentially non scheduled compound is in Phase II clinical
trials. Development will target both adult and pediatric ADHD patients and, as
with SPD 420, the product is likely to assist in treating certain subsets of
symptoms.
Epilepsy
Epilepsy is a condition currently affecting a large market of approximately 2.5
million people in the U.S. We have three projects under development for the
treatment of this condition, with the aim of building a franchise based on our
existing U.S. marketed product, CARBATROL.
13
SPD 421, a unique phospholipid derivative of valproic acid, was in-licensed from
D-Pharm on March 14, 2000. Despite the excellent efficacy profile of valproic
acid, a variety of adverse effects limit its usage. The first Phase II trial of
SPD 421, for which preparation was initiated during Q3 2001, will be a
multicenter, multinational study as add-on therapy in the treatment of complex
partial seizures. Preclinical data and Phase I results demonstrate favorable
safety and pharmacokinetic profiles of the drug.
SPD 452 and SPD 453, new projects described as novel formulations of established
anti-epileptic drugs, were introduced during Q2 2001 and replaced the project
SPD 418 which was discontinued in Q2 2001 as a result of unsatisfactory Phase I
results.
SPD 502 for stroke
On February 5, 1998, we in-licensed from NeuroSearch A/S an AMPA antagonist, SPD
502, for central nervous system disorders including the acute treatment of
stroke. The project is currently at Phase I. As the development of treatments
for stroke is of a particularly high risk nature, further development of this
project is on hold while a third party is sought to share the risk.
Parkinson's disease
Parkinson's disease is a relatively common disease that causes a progressive
loss of movement, rigidity, postural abnormalities and tremor. As the number of
elderly in the population increases it is likely that the number of patients
with Parkinson's disease will also rise.
We have been developing a dopamine D1 agonist project, SPD 451, since December
2000, when it was in-licensed from CeNeS Pharmaceuticals plc. This project is
currently in the preclinical stage of development. In November 2001, we extended
our research into Parkinson's disease by acquiring the rights to a second
development project, SPD 473, which had originally been granted to DevCo
Pharmaceuticals Limited. SPD 473 is a mixed and potent dopamine, 5HT and
noradrenaline re-uptake inhibitor. A proof of concept study (Phase IIa) is
currently being conducted.
SPD 474 is a project to identify an additional compound for Parkinson's disease
which is being conducted in collaboration with an un-named third party.
Treatments for infections
Following our merger with BioChem, the anti-infective area has become of
strategic importance to us, and we now have a strong portfolio of antiviral
medications and anti-infective vaccines.
Influenza vaccines
SPD 707, a split virion influenza vaccine was introduced as a project during Q3
2001. It is already manufactured and marketed by us in Canada as FLUVIRAL S/F.
We are now capitalizing on our global rights to FLUVIRAL S/F by investigating
its potential for other markets, primarily the U.S. and Europe. This project is
considered to be at the end of Phase II since Phase III data will be needed to
support marketing approval applications in the major markets.
On October 29, 2001, we announced that Shire Biologics Inc. had signed a
ten-year contract with the Government of Canada to assure a state of readiness
in the case of an influenza pandemic (worldwide epidemic) and to provide
influenza vaccine for all Canadian citizens in such an event. Under the
contract, Shire Biologics will also supply the Government of Canada with a
substantial proportion of its annual influenza vaccine requirements over the
ten-year period. It has been estimated that the value of the agreement may
exceed CAN$300 million (approximately $190 million).
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SPD 701
SPD 701 is a cell based influenza vaccine. Prior to our merger, BioChem
announced in its Q1 2001 financial results that the agreement with GSK to
develop SPD 701 had been terminated. In our Q3 2001 financial results we
announced that we were negotiating a termination of the research agreement with
BioVector and confirmed that development of both the nasal and injectable
formulations of SPD 701 will not continue until a new partner has been found.
HIV/AIDS
Our expertise in HIV/AIDS, has lead to the discovery of two further
antiretroviral compounds; SPD 756 (formerly BCH 13520) and SPD 754 (formerly BCH
10618).
SPD 756
SPD 756 is a potent nucleoside (guanosine) analogue. It is a nucleoside reverse
transcriptase inhibitor. It has been shown in vitro to retain efficacy against
resistant clinical isolates including multiple and highly resistant strains of
HIV. In preclinical studies viruses resistant to SPD 756 emerged slowly. This
project entered Phase I clinical studies during Q3 2001.
SPD 754
SPD 754 is a nucleoside (cytidine) analogue that also reduces the rate of
replication of HIV.
Preclinical data indicates that SPD 754 is active against HIV strains which have
developed resistance to other nucleoside analogues such as AZT and 3TC, as well
as against clinical isolates of HIV-1 that are highly resistant to a range of
nucleoside analogues. As with SPD 756, preclinical studies indicate that viral
resistance to SPD 754 appears to develop very slowly. In addition, SPD 754 is
able to penetrate the cerebrospinal fluid, considered an HIV sanctuary. SPD 754
is currently in Phase I development.
Antibacterial vaccines
There is a great need for new antibacterial vaccines, especially given the
increasing resistance of many bacteria to current antibiotics. As existing
vaccines often do not provide effective immunisation against many deadly
bacteria, we are developing a new generation of antibacterial vaccines based on
innovative recombinant protein technology.
In April 2000, the Government of Canada provided substantial financial support
for our work in the field of antibacterial vaccines within the scope of the
Technology Partnerships Canada (TPC) program.
We have three vaccines in development against the following bacteria: Neisseria
meningitidis, Streptococcus pneumoniae and Pseudomonas aeruginosa.
SPD 704 - Neisseria meningitidis vaccine
Our meningococcal vaccine candidate, SPD 704, is designed to protect against
infection by Neisseria meningitidis. Two of the most common outcomes of
infection by Neisseria meningitidis are meningococcal meningitis and
septicaemia. During the 1990s this bacteria emerged as one of the two most
common bacterial causes of meningitis. Apart from epidemics, at least 1.2
million cases of bacterial meningitis are estimated to occur every year, 135,000
of which are fatal, according to WHO statistics. Some 500,000 of these cases and
50,000 of the deaths are attributable to Neisseria meningitidis. It strikes at
otherwise
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healthy children under the age of five, with the highest incidence among
children aged six to 12 months, and can kill within 48 hours.
Existing polysaccharide vaccines against Neisseria meningitidis only protect
against four of the 12 serogroups of Neisseria meningitides and none protect
against serogroup B, one of the most common strains of the bacteria in
industrialised countries such as Canada, the U.S. and the U.K. SPD 704 appears
to have the potential to protect against all known serogroups of the bacteria,
including type B. Also, currently available polysaccharide (carbohydrate based)
vaccines are generally poorly immunogenic in children and in immunocompromised
patients. In contrast SPD 704 has the potential to induce a potent and long
lasting immunity in these patients. If these properties are confirmed in
clinical trials, our recombinant protein vaccine against Neisseria meningitidis
will be a very significant medical advance. This vaccine is currently in Phase I
clinical trials.
SPD 703 - Streptococcus pneumoniae vaccine
Streptococcus pneumoniae can cause a variety of infections including meningitis,
pneumonia and acute otitis media (ear infection). The U.S. Centers for Disease
Control and Protection estimates that each year in the U.S. Streptococcus.
pneumoniae causes at least 3,000 cases of meningitis, nearly half a million
cases of severe pneumonia and at least 40,000 deaths together with 7 to 10
million cases of acute otitis media (ear infection) in children.
Until now efforts to combat the disease caused by this bacteria have been
hampered by the fact that existing polysaccharide vaccines fail to elicit much
of a response in the elderly or in healthy children under the age of two years,
the age where 80% of childhood pneumococcal disease occurs. We believe that our
protein based vaccine, SPD 703, should stimulate the immune system better and
has the potential to provide improved protection for children and older people
alike. This project is at the preclinical phase of development.
SPD 705 - Pseudomonas aeruginosa vaccine
Pseudomonas aeruginosa is one of the leading causes of life threatening
nosocomial (hospital acquired) infections. It causes chronic degenerative
pulmonary disease in cystic fibrosis patients and can cause death in 30 - 60 %
of immunocompromised patients. There is a high and increasing level of
antibiotic resistance to this bacteria.
We are collaborating with Cytovax Biotechnologies Inc. (Cytovax) in the
development of a vaccine against Pseudomonas aeruginosa, known as SPD 705.
Scientists at the University of Alberta had been conducting research on the pili
of Pseudomonas aeruginosa, which are appendages responsible for bacterial
attachment to cells. Cytovax's proprietary "Anti-Adhesion Platform Technology"
could prevent infection by blocking the adhesion of pathogens onto human mucosal
cells. Based on the pili tip sequences, Cytovax has developed a consensus
sequence peptide vaccine that has the potential to elicit protective immunity
against experimental infection. This project is currently in preclinical
development.
Treatments for oncology
AGRYLIN for Essential Thrombocythemia
We market AGRYLIN in the U.S. and Canada for the treatment of Essential
Thrombocythemia, where it is the only medicine approved for this condition. We
are continuing to develop AGRYLIN for other countries with the preparation of
the Marketing Authorization Application for the EU and Phase I clinical trials
in Japan. It is anticipated that the European filing will be made during Q2
2002.
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In January 2001, the European Commission granted orphan drug designation to
anagrelide for the treatment of essential thrombocythemia. This designation
covers the EU plus Norway and Iceland, and confers up to ten years market
exclusivity for the product following marketing authorization approval. Orphan
drug status already applies to anagrelide in the U.S., where market exclusivity
is available until 2004, and in Japan where it will run for ten years following
marketing approval.
SPD 427, an oncology product
SPD 427, a novel formulation of an existing oncology product will be developed
using our drug delivery expertise at Shire Laboratories Inc. This project is
undergoing Phase II clinical trials.
TROXATYL for leukemia and pancreatic cancer
TROXATYL is being clinically evaluated for two types of cancer; leukemias, such
as acute myeloid leukemia, together with solid tumors such as pancreatic cancer.
In children, cancer is the leading cause of death between the ages of 3 and 13
years; about half of these deaths are due to leukemia. It has been estimated
that in 2002 there will be approximately 96,550 new cases of pancreatic cancer
across North America, the EU and Japan.
We discovered TROXATYL (SPD 758, troxacitabine), the first dioxolane nucleoside
analogue.
Studies to date have shown that TROXATYL is a complete DNA chain terminator and
DNA polymerase inhibitor. As such, it appears to incorporate itself into the
growing DNA chain of cancer cells, interfering with their ability to replicate
further. Unlike other cytidine analogues currently used in cancer therapy,
TROXATYL is not degraded by cytidine deaminase.
Development in leukemia has reached Phase II, while a Phase I study in
pancreatic cancer commenced in early 2002. Treatments for other diseases
FOZNOL for hyperphosphatemia
FOZNOL (lanthanum carbonate) is being developed for the prevention and treatment
of high levels of phosphate in the blood in patients with chronic kidney
failure. Hyperphosphatemia arises from damaged kidneys being unable to eliminate
from the body the excess dietary phosphate that is widespread in food. Renal
dialysis and a restricted diet are generally unable to reduce these phosphate
levels sufficiently. If left untreated, hyperphosphatemia can result in renal
osteodystrophy, a painful condition with similarities to osteoporosis, in which
there are abnormalities in the formation and structure of bone. Taking lanthanum
carbonate with food results in the formation of the relatively water insoluble
compound, lanthanum phosphate, which cannot pass easily through the gut lining
into the blood stream. As a consequence, phosphate absorption from the diet is
decreased. As FOZNOL does not contain calcium it enables the physician to
separate the control of calcium from phosphate.
It is estimated that there are 650,000 patients worldwide with end-stage renal
disease. We believe that current therapies are not ideal: aluminum salts can
cause neural toxicity and are no longer widely used; calcium salts are
inefficient binders requiring large doses and often causing hypercalcemia, which
among other things, can result in calcification of blood vessels.
The first regulatory submission for FOZNOL was made on March 13, 2001 to a
Reference Member State in Europe, the initial step in the process that leads to
the Mutual Recognition Procedure. The U.S. NDA is being prepared and is planned
to be submitted to the FDA in Q2 2002.
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PENTASA for ulcerative colitis
PENTASA 250mg, which is currently marketed in the U.S., is used to treat
ulcerative colitis. As part of the acquisition of PENTASA from Hoechst Marion
Roussel, we received U.S. rights to a 500mg capsule, which has completed Phase
II development. An optimum formulation is required before we can proceed to
Phase III. The new 500mg capsule formulation or a higher dose formulation would
aid the compliance of patients who often need to take large doses of this
medication.
COLAZIDE for ulcerative colitis
In May 2000, we in-licensed COLAZIDE, a second treatment for ulcerative colitis,
from Salix Pharmaceuticals Inc., for a number of European countries. The first
launch was in the U.K. in September 2000. Once the necessary regulatory
approvals have been gained, we intend to market COLAZIDE in France and Germany;
the other countries covered by the agreement will be handled by distributors.
Following discussions with various regulatory authorities in Europe, it appears
that further data will be required before we could submit a Marketing
Authorization Application.
Emitasol for diabetic gastroparesis
Emitasol is an intranasal formulation of metoclopramide, an existing anti-nausea
drug currently available in oral and injectable forms for which Phase II studies
have been completed. In the Q3 2001 financial results we announced that we had
discontinued development of Emitasol and had ended the agreement with Questcor.
This decision was taken as part of the portfolio review undertaken as part of
the merger process with BioChem. The potential market for this project did not
warrant our continued support.
(c) Drug delivery technologies
We have several platforms of drug delivery technologies that can be applied to
drugs in order to enhance their effectiveness or their convenience to patients.
Generally, this involves reformulating the drug into a new delivery system
designed either to enhance the absorption of the drug into the blood stream or,
alternatively, to delay absorption of the drug into the bloodstream, thereby
requiring the patient to take fewer daily doses.
Our portfolio of drug delivery technologies includes technologies to predict and
enhance bioavailability of drugs as well as technologies to develop oral
controlled release profiles. These technologies are available to third parties
in return for development fees, licensing fees, milestone payments and
royalties. We have employed these technologies selectively to develop our own
unique products such as CARBATROL and ADDERALL XR and intend to continue doing
so in the future.
Manufacturing and Distribution
ADDERALL XR is manufactured by DSM Pharmaceuticals Inc. (DSM). Prior to
commercial approval of ADDERALL XR, DSM's manufacturing facility was the subject
of multiple FDA inspections. The findings from these inspections identified
compliance issues at the facility that we believe have been satisfactorily
resolved by DSM. Factors adversely impacting the future production of ADDERALL
XR at this facility would have a material adverse effect on our financial
condition and results of operation.
We manufacture and package ADDERALL and DEXTROSTAT(TM) at our facility in Valley
Stream, New York. Our other products marketed in the U.S. are manufactured and
packaged by third party contract manufacturers.
In June 2001, we sold our pharmaceutical manufacturing facility located in
Oakville, Ontario, Canada.
18
Our U.S. distribution center, which includes a large vault to house DEA
regulated Schedule II products, is located in Florence, Kentucky. From there, we
distribute our ADHD products to nearly all the wholesale distribution centers
and the three major warehousing pharmacy chains that stock Schedule II drugs in
the U.S., providing access to nearly all pharmacies in the U.S. We distribute
other products from a facility located in a suburb of Chicago.
In Canada all products are manufactured by a third party manufacturer, with the
exception of our vaccines which are manufactured in house.
All products marketed by the U.K. based sales and marketing operation are either
manufactured and supplied by the originator of the product under supply
arrangements or are manufactured for us by third parties under contract.
Distribution in the U.K. and the Republic of Ireland and to export territories
is also contracted out to third parties. We have access to all principal drug
wholesale chains in the U.K. and the Republic of Ireland and their respective
distribution centers.
In both the U.S. and the U.K., a small number of large wholesale distributors
control a significant share of each market. In recent years the number of
independent drug stores and small chains has decreased as a result of
consolidation. Consolidation or financial difficulties could cause customers to
reduce their inventory levels, or otherwise reduce purchases of our products.
In the U.S., our significant customers include McKesson Corp., Bergen Brunswig
Corp. and Cardinal Health Inc. In the U.K., our customers include The Boots
Company PLC, AAH Pharmaceuticals Ltd and Unichem Plc. For the fiscal year ended
December 31, 2001, our three largest customers accounted for approximately 20%,
14% and 9% of total revenues, respectively. The loss of any one of these
customer accounts could have a material adverse effect on our financial
condition and results of operations.
Intellectual Property
An important part of our business strategy is to protect our products and
technologies through the use of patents, proprietary technologies and
trademarks, to the extent available. Our success will depend, in part, upon our
ability to obtain and enforce strong patents, to maintain trade secret
protection and to operate without infringing the proprietary rights of others.
Our policy is to seek patent protection for our proprietary technology whenever
possible in the U.S., Canada, major European countries and Japan. Where
practicable, we seek patent protection in other countries on a selective basis.
In all cases, we endeavor to either obtain patent protection ourselves or
support applications by our licensors.
ADDERALL is not protected by patent. On February 11, 2002 Barr Laboratories Inc.
announced FDA approval to market a generic version of this twice / three times
daily product. We are also aware that a number of other pharmaceutical companies
may have filed ANDA's with the FDA for authorization to market a generic version
of this twice / three times daily product. However, we received product approval
from the FDA on October 12, 2001 for our extended release "once daily" version
of ADDERALL, ADDERALL XR, which was recently launched and was granted patent
protection in November 2001 in the U.S.
We have issued patents and pending applications in the U.S., Canada, most
European countries, Japan and selected countries worldwide in the areas of
therapeutics and biologics, including patents and applications relating to our
products, our process technologies and, where appropriate, in respect of the
formulation of products made by those processes or incorporating those
technologies.
We cannot however assure you that our patents or patent applications or those of
our third party manufacturers will provide valid patent protection sufficiently
broad to protect our products and technology and will not be challenged,
revoked, invalidated, infringed or circumvented by third parties. In the regular
course of business, we are a party to litigation or other proceedings relating
to intellectual property rights.
19
We also rely on trade secrets, unpatented know-how and technological
innovations, trademarks and contractual arrangements with third parties to
maintain and enhance our competitive position where we are unable to obtain
patent protection or our marketed products are not covered by specific patents.
Our commercial success will depend in part on our not infringing patents or
proprietary rights of others and not breaching licenses granted to us. The
degree of patent protection afforded to pharmaceutical or biological inventions
around the world is uncertain. We are aware of certain issued patents and patent
applications of third parties, and there may be other patents and patent
applications containing subject matter which we, or our licensees, may require
in order to research, develop or commercialize certain of our products and
technologies. If patents are granted to other parties that contain claims having
a scope that is interpreted by the relevant authorities to cover any of our
products or technologies, there can be no guarantee that we will be able to
obtain licenses to such patents or make other arrangements at reasonable cost,
if at all. Failure to obtain a license to any technology or patents that we may
require to commercialize our products or technology may result in material
adverse effects on the sale or development of the product or technology in
question and lead to the abandonment or delay in development, manufacture or
sale of that product or technology and lead to additional expenses.
Our licensors hold issued patents in the U.S., Europe and Japan relating to the
use of galantamine for the treatment of Alzheimer's disease and related
dementias.
Our licensors hold an issued patent in the U.S., a granted patent in Europe and
pending applications in selected other countries relating to the phosphate
binder which we are developing for use in the treatment of hyperphosphatemia.
We have been granted orphan drug exclusivity until 2004 in the U.S. for the
product AGRYLIN. We hold patents and patent applications in the U.S. and other
selected countries including Europe relating to processes for producing the
active ingredient anagrelide.
We have numerous issued patents in the U.S. claiming nucleoside analogues,
methods of treatment using nucleoside analogues and processes for producing
these nucleoside analogues. These patents include claims covering the chemical
composition of lamivudine and related nucleoside analogues and methods of
treating viral infections, including HIV and hepatitis B with lamivudine and
related nucleoside analogs. We also have issued patents and pending applications
covering lamivudine, TROXATYL, SPD 756, SPD 754 and related nucleoside
analogues, processes for their preparation and methods of using same in over 100
countries, including the U.S., Europe and Japan.
Competition
The manufacture and sale of pharmaceuticals is highly competitive. Many of our
present and potential competitors have research and development capabilities
that may allow such competitors to develop new or improved products that compete
with our products. The pharmaceutical industry is characterized by rapid product
development and technological change. Our pharmaceutical products may be
rendered obsolete or uneconomical by the development of new pharmaceuticals to
treat the conditions addressed by our products or as the result of either
technological advances affecting the cost of production or marketing or pricing
action by competitors.
We believe that competition in our markets is based on, among other things,
product safety, efficacy, convenience of dosing, reliability, availability and
price. Companies with more resources and larger research and development
expenditures have a greater ability to fund research and clinical trials
necessary for regulatory applications, and may have an improved likelihood of
obtaining approval of drugs that would compete with our drugs. Prior regulatory
approvals for competing products would force our development products to compete
with an established drug. Other products now in use or under development by
others may be more effective or have fewer side effects than our current or
future products. For example, we are
20
aware of a number of products that compete with REMINYL, including Aricept by
Pfizer and Exelon by Novartis. FOZNOL's principal competitor is likely to be
RenaGel, which was launched in 1998. The product was developed by GelTex
Pharmaceutical, Inc. and is marketed by Genzyme General.
In addition, we are aware of efforts by competitors to develop both improved
formulations of existing Schedule II drugs and new, non-Schedule II drugs, for
the treatment of ADHD. For example, Alza Corporation, Novartis (in collaboration
with Elan), Celltech plc (in collaboration with Eurand) and Noven are believed
to be developing extended release, once-a-day formulations of methylphenidate
while Celgene and Celltech Chiroscience plc are both working to develop a single
isomer version of methylphenidate. GSK, Eli Lilly, Bristol-Myers Squibb (in
collaboration with Sano Corporation) and Abbott are believed to be developing
non Schedule II products for ADHD. Initial products of this type could become
available as early as the fourth quarter of 2002. On February 11, 2002 Barr
Laboratories Inc. announced FDA approval to market a generic version of this
twice / three times daily product. We are also aware that a number of other
pharmaceutical companies may have filed ANDA's with the FDA and are seeking
approval for a generic version of ADDERALL which no longer has marketing
exclusivity in the U.S. Any products approved by the FDA, could have a material
adverse effect on the sales of ADDERALL, which represented approximately 36% of
our total revenues for the year ended December 31, 2001. On October 12, 2001 we
received FDA approval for our new once a day formulation of ADDERALL, ADDERALL
XR. We hold a patent covering the drug product for ADDERALL XR in the U.S. We
believe that ADDERALL XR, a once a day formulation has certain benefits to the
patient over and above other twice / three times daily drugs (including ADDERALL
and its generic versions).
Principal Licensing and Collaborative Agreements
Various Galantamine Agreements
Pursuant to an agreement with Synaptech Inc., the owner of the patents on
galantamine for use in the treatment of Alzheimer's disease, we have undertaken
technical, pre-clinical and clinical work on the use of REMINYL in Alzheimer's
disease and related dementias. We initially paid Synaptech an up front payment
of (pound)1 million (approximately $1.4 million) which was accounted for as a
development cost, and have agreed to pay royalties on sales of REMINYL. We have
also entered into a co-development agreement with Janssen under which we
licensed to Janssen all of our clinical data and know-how relating to the use of
galantamine in Alzheimer's disease and related dementias worldwide, except for
the U.K. and the Republic of Ireland. The agreement provides for a one-time
upfront payment, a milestone payment and the reimbursement of development costs.
The upfront and milestone payments were recognized as licensing and development
income when they became due. Under these arrangements, Janssen undertook to
finance substantially all the future research and development costs of REMINYL
as a treatment for Alzheimer's disease and related dementias and to conduct
clinical trials, obtain regulatory approvals and manufacture and market REMINYL.
As a result we are dependent on Janssen for any revenues derived from REMINYL.
Moreover, there can be no assurance that our interests will continue to coincide
with those of Janssen.
Our rights to develop, manufacture and sell REMINYL for use in the treatment of
Alzheimer's disease and related dementias under the patents of Synaptech extend
throughout the world but exclude North America, Japan, Korea, Taiwan, Thailand
and Singapore. We have, in turn, entered into a sub-license with Janssen under
which we granted Janssen exclusive rights to develop, manufacture and sell
REMINYL for use in Alzheimer's disease in all territories licensed to us except
the U.K. and the Republic of Ireland. We also have the right to reacquire the
rights to sell REMINYL in one of a specified group of major European countries
five or 10 years after commercial launch. Janssen has entered into a separate
license agreement with Synaptech covering North America, Japan, Korea, Taiwan,
Thailand and Singapore. Synaptech authorized us to enter into the above
co-development agreement and the above sub-license agreement
21
with Janssen, under which, among other things, we will receive royalties on
sales of REMINYL by Janssen in the U.S.
The co-development agreement and sub-license granted to Janssen may be
terminated by Janssen on 90 days' notice. If Janssen exercises its right to
terminate the license and co-development agreement under this provision, the
licenses granted to Janssen terminate and Janssen is also obligated to transfer
to us data and other information and responsibility for the management of
continuing development and registrations of the product. The costs of ongoing
studies will be shared by us and Janssen in the relevant proportions in the
agreement for three months after the date of termination except for the costs
payable for clinical trials, which will be shared until they can be properly
terminated. Under the agreement we have the right to complete the registration
of the products and seek alternative partners.
Lamivudine
By agreement between Shire BioChem and GSK dated January 31, 1990 and amended as
of November 20, 1995, Shire BioChem licensed to GSK the worldwide rights, with
the exception of Canada, to develop, manufacture and sell the nucleoside
analogue lamivudine marketed as 3TC, ZEFFIX Heptodin, HEPTOVIR, EPIVIR,
EPIVIR-HBV, COMBIVIR and TRIZIVIR (together referred to in this section as
"lamivudine"). A partnership exists between GSK's Canadian subsidiary, GSK Inc.,
and Shire BioChem to supply, market and sell lamivudine in Canada. GSK has
agreed to manufacture all the required lamivudine to be supplied in Canada by
the partnership.
In consideration for the grant of such rights, GSK agreed to undertake and fund
the development of lamivudine and to pay Shire BioChem a royalty on sales of
lamivudine. In addition, it was agreed that milestone payments would be made to
Shire BioChem in installments as GSK progressed in the development and approval
process. The amount of relevant patent prosecution costs and 50% of milestone
payments are deductible from any royalties payable to Shire BioChem by GSK. The
milestone payments and its related deductions from royalties have been
completed. Certain contractual and litigation costs may be deducted from
royalties payable to Shire BioChem by GSK. If GSK terminates the license
agreements upon certain events of default by Shire BioChem, GSK will retain a
non-exclusive, paid-up license from Shire BioChem to make, have made, use and
sell lamivudine worldwide.
Please refer to Note 19b (iv) to the consolidated financial statements for
further details in relation to lamivudine.
PROAMATINE
By agreement dated November 23, 2000 we re-negotiated the terms and duration of
our distribution agreement with Nycomed Austria GmbH for the supply of
PROAMATINE in the U.S., Canada, the U.K. and the Republic of Ireland. We now
have exclusive rights to supply PROAMATINE in these countries until 2010 and we
no longer pay a royalty on sales to Nycomed having "bought back" the royalty as
part of the re-negotiation.
FLUVIRAL
The Company has signed a ten-year contract with the Government of Canada to
assure a state of readiness in the case of an influenza pandemic (worldwide
epidemic) and to provide influenza vaccine for all Canadian citizens in such an
event. Under the contract, Shire Biologics will also supply the Government of
Canada with a substantial proportion of its annual influenza vaccine
requirements over the ten-year period. The value of the agreement may exceed
C$300 million (approximately $190 million) over the ten-year term, with an
option for the Government of Canada to extend the contract.
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The concept of a state of readiness against an influenza pandemic requires the
development of sufficient infrastructure and capacity in Canada to provide 100%
of domestic vaccine needs in the event of an influenza pandemic. Canada would
require 32 million doses of single-strain (monovalent) flu vaccine within a
production period of 16 weeks. Shire Biologics will therefore begin expanding
its current production capacity in order to meet this objective within a
five-year period.
Shire Biologics is committed to CAN$4.5 million (approximately $2.8 million) of
capital expenditure on immoveables for the purpose of achieving the level of
Pandemic Readiness required. In addition, a performance bond equal to 10% of the
minimum estimated contract value in any year, which for 2001/2002 is CAN$17.5
million (approximately $11 million), would become payable to the Government of
Canada if contracted penalty clauses were triggered.
Johnson Matthey--FOZNOL
Johnson Matthey plc has granted patents in the U.S. and Europe and pending
applications elsewhere for pharmaceutical compositions containing lanthanum
carbonate and to use of these compositions for the treatment or prevention of
hyperphosphatemia. In February 1996, we entered into an agreement with Johnson
Matthey under which Johnson Matthey granted to us an exclusive license agreement
to develop, manufacture, use and sell FOZNOL worldwide. Under the license
agreement, in return for an exclusive license we paid an upfront payment and are
committed to a royalty on sales of FOZNOL. We have consented to the assignment
by Johnson Matthey of its patents to AnorMed Inc., a Canadian company, which is
partially owned by Johnson Matthey. As part of these arrangements we amended the
agreement and received an exclusive worldwide license to use Johnson Matthey's
manufacturing know-how in return for up front payments and future royalties.
Government Regulation
The clinical development, manufacturing and marketing of our products are
subject to regulation by various authorities in the U.S. and the EU, including,
in the U.S., the FDA, the DEA and the Occupational Safety and Health
Administration, and in the U.K., principally the Medicines Control Agency (MCA).
The Federal Food, Drug, and Cosmetic Act, the Public Health Service Act in the
U.S. and numerous directives and guidelines in the EU govern the testing,
manufacture, safety, efficacy, labeling, storage, record keeping, approval,
advertising and promotion of our products. Product development and approval
within these regulatory frameworks takes a number of years and involves the
expenditure of substantial resources.
Regulatory approval will be required in the major markets in which we or our
licensees seek to test or market products. At a minimum, such approval requires
the evaluation of data relating to the quality, safety and efficacy of a product
for its proposed use. The specific types of data required and the regulations
relating to this data will differ depending on the territory, the drug involved
and the stage of development.
In general, for a new chemical entity, the product needs to undergo rigorous
preclinical testing before it can be used in humans, both in the laboratory and,
until suitable alternative tests are found, in animals. Clinical trials for new
products are typically conducted in three sequential phases that may overlap. In
Phase I, the initial introduction of the pharmaceutical into healthy human
volunteers, the emphasis is on testing for safety (adverse effects), dosage
tolerance, metabolism, distribution, excretion and clinical pharmacology. Phase
II involves studies in a limited patient population to determine the initial
efficacy of the pharmaceutical for specific targeted indications, to determine
dosage tolerance and optimal dosage and to identify possible adverse side
effects and safety risks. Once a compound is found to be effective and to have
an acceptable safety profile in Phase II evaluations, Phase III trials are
undertaken to more fully evaluate clinical outcomes.
In the U.S., data, as described above, needs to be submitted to the FDA as part
of an Investigational New Drug (IND) application which, unless the FDA objects,
will become effective 30 days following receipt by the
23
FDA. Phase I studies in human volunteers may commence only after the application
becomes effective. Prior regulatory approval for human volunteer studies is not
required in the U.K., although the same level of testing will need to have been
completed before we decide it is safe to proceed. In the U.K. following
successful completion of Phase I studies, data is then submitted in summarized
format to the MCA as a clinical trial exemption application in support of a
specific Phase II clinical study or program, and provided no objection has been
received within a maximum of 63 days after receipt, the Phase II studies may
commence. For any additional studies, Phase II and/or Phase III, further
submissions to regulatory authorities are necessary, detailing results of
previous trials, updating ongoing preclinical studies and describing full
details of the proposed studies. Authorities may require additional data before
allowing the studies to commence and could demand the studies be discontinued at
any time if there are significant safety issues. In addition to the regulatory
review, a study often has to be approved by an independent body. The exact
composition and responsibilities of this body will differ from territory to
territory. In the U.S., for example, each study will be conducted under the
auspices of an independent Institutional Review Board at the institution at
which the study is conducted. This board considers among other things, the
design of the study, ethical factors, the safety of the human subjects and the
possible liability risk for the institution. The U.K. equivalent of this body,
the Ethics Committee, has a very similar approach. Other authorities around
Europe and the rest of the world have slightly differing requirements involving
both the execution of clinical trials and the import/ export of pharmaceutical
products. It is our responsibility to ensure we conduct our business in
accordance with the regulations of each relevant territory.
Information generated in this process is susceptible to varying interpretations
that could delay, limit or prevent regulatory approval at any stage of the
approval process. The failure to demonstrate adequately the quality, safety and
efficacy of a therapeutic drug under development would delay or prevent
regulatory approval of the product. There can be no assurance that if clinical
trials are completed, either we or our collaborative partners will submit
applications for required authorizations to manufacture and/or market potential
products (including a marketing authorization, NDA or abbreviated NDA) or that
any such application will be reviewed and approved by the appropriate regulatory
authorities in a timely manner, if at all.
In order to gain marketing approval we must submit a dossier to the relevant
authority for review. The format is usually specific and laid out by each
authority, although in general it will include information on the chemistry and
pharmaceutical aspects of the product as well as the pre-clinical and clinical
data. The FDA undertakes the review for the U.S.; in Europe the review may be
undertaken by the European Medicines Evaluation Agency or an individual
country's agency, followed by "mutual recognition" of this review by a number of
other countries' agencies, depending on the process applicable to the drug in
question. Approval can take several months to several years, or be denied. The
approval process can be affected by a number of factors; additional animal
studies or clinical trials may be requested during the review and may delay
marketing approval and involve unbudgeted costs. The agency may conduct an
inspection of the facility, review manufacturing procedures, operating systems
and personnel qualifications. In addition to obtaining approval for each
product, in many cases each drug manufacturing facility must be approved.
Further inspections may occur over the life of the product. As a condition of
approval, the regulatory agency may require post-marketing surveillance to
monitor for adverse effects. After approval for the initial indication, further
clinical studies are necessary to gain approval for any additional indications.
The terms of any approval, including labeling content, may be more restrictive
than expected and could affect the marketability of a product.
In the U.S., the Drug Price Competition and Patent Restoration Term Act of 1984,
known as the Waxman-Hatch Act, established abbreviated application procedures
for obtaining FDA approval for many brand name drugs that are off-patent and
whose marketing exclusivity has expired. Approval to manufacture these drugs is
obtained by filing an abbreviated new drug application. As a substitute for
conducting full-scale pre-clinical and clinical studies of the brand name drug,
the FDA requires data establishing that the drug formulation, which is the
subject of an abbreviated application, is either bio-equivalent or has the same
24
therapeutic effect as the previously approved drug, among other requirements.
The European guidelines also allow for the submission of abridged applications
using similar criteria to the U.S. system.
For both currently marketed and future products, failure to comply with
applicable regulatory requirements after obtaining regulatory approval can,
among other things, result in the suspension of regulatory approval, as well as
possible civil and criminal sanctions. Renewals in Europe may require additional
data, which may result in a license being withdrawn. In the U.S., the FDA has
the authority to revoke or suspend approvals of previously approved products, to
prevent companies and individuals from participating in the drug-approval
process, to request recalls, to seize violative products and to obtain
injunctions to close manufacturing plants not operating in conformity with
regulatory requirements and to stop shipments of violative products. The FDA
also may impose pre-clearance requirements on products currently being marketed
without FDA approval. In addition, changes in regulation could have a material
adverse effect on our financial condition and results of operation.
The DEA also controls the national production and distribution of Schedule II
drugs in the U.S. by allocating production quotas based, in part, upon the DEA's
view of national demand. As Schedule II drugs, the production and sale of our
ADHD products are strictly controlled. It cannot be guaranteed that a company
will always receive the quotas for which it applies, and this may have a
material effect on revenues and earnings.
Third Party Reimbursement
Our ability to market products depends in part on the extent to which healthcare
providers pay at appropriate reimbursement levels for the cost of the products
and related treatment. Third-party payers are increasingly challenging the
pricing of pharmaceutical products and/or seeking pharmacoeconomic data to
justify reimbursement practices. In the U.S., several factors outside of our
control could significantly influence the purchase of pharmaceutical products
including the ongoing trend toward managed health care, and the renewed focus to
reduce costs in state Medicaid and other government insurance programs. These
factors could result in lower prices or a reduction in demand for our products.
However, the prices of our products are fixed and determinable at the outset of
each transaction we undertake with our customers, and therefore these factors
would not impact the recording of our revenues in accordance with generally
accepted accounting principles.
Similar developments may take place in the EU markets, where the emphasis will
likely be on price controls and non-reimbursement for new and highly priced
medicines for which the economic as well as the therapeutic rationales are not
established. Significant uncertainty exists about the reimbursement status of
newly approved pharmaceutical products. There can be no assurance that
reimbursement will be available for any of our products. Limits on reimbursement
available from third-party payers may reduce the demand for our products. Price
applications in Europe have delayed product launches in some countries for up to
two years and as a consequence dates for product launches cannot be predicted
with accuracy.
Employees
On December 31, 2001, we employed 1,677 individuals, 759 of whom were in sales
and marketing, 407 of whom were in research and development, 212 of whom were in
manufacturing and distribution, and 299 of whom were in general and
administrative. In addition to our employees, we engage professional personnel
on a consultancy basis and, from time to time, consultants and others on a per
day or hourly basis. We believe that relations with our employees are
satisfactory. Our success is dependent on our ability to attract and retain
highly qualified management and scientific personnel. We face intense
competition for personnel from other companies, academic institutions,
government entities and other organizations. We may not be able to successfully
attract and retain such personnel. In general, we have agreements with our key
scientific and management personnel for periods of one year or less. The loss of
such personnel, or the
25
inability to attract and retain the additional highly skilled employees required
for our activities, could have an adverse effect on our business.
Financial Information about Foreign and Domestic Operations
Financial information about Foreign and Domestic Operations is presented in Note
22 to the consolidated financial statements.
Risk Factors
We have adopted a positive risk management strategy that enables us to identify
and manage significant risks that we face. While we aim to identify and manage
every significant risk that we face, it is important to recognize that no risk
management strategy can provide absolute assurance against loss.
Set out below are the key risk factors associated with our business that have
been identified through our approach to risk management.
The introduction of new products by competitors may impact future revenue.
The manufacture and sale of specialty pharmaceuticals is highly competitive.
Many of our competitors are large, well-known pharmaceutical, chemical and
health care companies with considerable resources. Companies with more resources
and larger research and development expenditures have a greater ability to fund
research and clinical trials necessary for regulatory applications. They may
also have an improved likelihood of obtaining approval of drugs that may compete
with those marketed or under development by us. If any product, that competes
with one of our principal drugs, is approved, sales of our drugs could fall.
The pharmaceutical industry is also characterized by rapid product development
and technological change. Our products could therefore be rendered obsolete or
uneconomical through the development of new products or technological advances
in the cost of production or marketing by our competitors.
The failure to secure new products for development may reduce the strength of
the future pipeline.
Our future results will depend, to a significant extent, upon our ability to
in-license or acquire new products for development. The failure to in-license,
acquire or to develop, on a commercially viable basis, new products could have a
material adverse effect on our financial position.
The actions of governments, regulators and customers can affect the ability to
sell or market products profitably.
Our ability to market our products profitably will depend on the impact on the
environments in which we operate, from governments, regulators and customers. In
particular, we depend in part on reimbursement levels for the cost of the
products and related treatment established by health care providers, including
government authorities, private health insurers and other organizations, such as
health maintenance organizations and managed care organizations. Third party
payers are increasingly challenging the pricing of pharmaceutical products and
reviewing their reimbursement practices.
In addition, the purchase of pharmaceutical products could be significantly
influenced by the following, which would result in lower prices and a reduced
demand for our products:
the ongoing trend toward managed health care in the U.S.;
legislative proposals to reform health care and government insurance
programs; or
26
price controls and non-reimbursement of new and highly priced medicines for
which the economic and therapeutic rationales are not established.
In both the U.S. and the U.K., a small number of large wholesale distributors
control a significant share of each market. In addition, the number of
independent drug stores and small chains has decreased as retail pharmacy
consolidation has occurred. Consolidation or financial difficulties could cause
customers to reduce their inventory levels, or otherwise reduce purchases of our
products.
We enter into strategic partnerships for the development and commercialization
of our products. The failure of a strategic partner to deliver the required
results could result in delays in approval or loss of revenue.
We enter into strategic partnerships with other companies in areas such as
product development or sales and marketing. In these partnerships, we are
dependent on our partner to deliver results. While these partnerships are
supported by contracts, we do not exercise direct control. If a partner fails to
perform, we may suffer a reduction in sales or royalties or may experience
delays in approval of products.
The outsourcing of services can create a significant dependency on third
parties, the failure of whom can affect the ability to operate our business and
to develop and market products.
We have entered into many agreements with third parties for the provision of
services to enable us to operate our business. In particular, we have entered
into agreements with third party contract manufacturers for the supply of our
development and marketed products. Many of the components of these products are
available only from one supplier. We may not be able to establish or maintain
good relationships with the suppliers. Additionally, there is no assurance that
the suppliers will continue to exist on commercially viable terms or be able to
supply components that meet regulatory requirements. We are also subject to the
risk that suppliers will not be able to meet the quantities needed to meet
market requirements.
The development and approval of our products depends on the ability to procure
active ingredients and special packaging materials from sources approved by
regulatory authorities. Because the marketing approval process requires
manufacturers to specify their own proposed suppliers of active ingredients and
special packaging materials in their applications, regulatory approval of a new
supplier would be required if active ingredients or such packaging materials
were no longer available from the specified supplier. The need to qualify a new
supplier could delay our development and marketing efforts.
We have entered into licensing and co-development agreements with a number of
parties. There is a risk that, upon expiration or termination of a third party
agreement, we may not be able to renew or extend the agreement with the third
party, as interests may no longer coincide. In such circumstances, we may be
unable to continue to develop or market our products as planned and could be
required to abandon or divest a product line.
We intend to explore acquisitions and our future growth will partly depend on
the completion of such transactions. If we do complete acquisitions but fail to
integrate these successfully, we may have products or operations that do not
yield any benefit.
We intend to pursue business and product acquisitions that could complement or
expand our operations. However, we may not be able to identify appropriate
product acquisition candidates. If an acquisition candidate is identified, we do
not know if we will be able to negotiate successfully the terms of the
acquisition, finance the acquisition or integrate an acquired business or
product into our existing operations. The negotiation and completion of
potential acquisitions could cause diversion of management's time and resources.
27
If we complete one or more significant acquisitions through the issuance of
ordinary shares or ADS's, holders of ordinary shares and ADS's could suffer
significant dilution of their ownership interests.
If we are unable to meet the requirements of regulators in relation to a
particular product, we may be unable to develop and market the product.
Drug companies that manufacture or market drugs are required to obtain
regulatory approval before marketing most drug products. Regulatory approval is
generally based on the results of:
o preclinical testing;
o clinical data;
o manufacturing, chemistry and control data; and
o bioavailability.
The clinical development, manufacture, marketing and sale of pharmaceutical
products are subject to extensive regulation, including separate regulation by
each country in the EU, the EU itself, and federal, state and local regulation
in the U.S. Unanticipated legislative and other regulatory actions and
developments concerning various aspects of our operations and products may
restrict our ability to sell one or more of our products or to sell those
products at a profit. The primary regulatory authorities which regulate our
ability to manufacture and sell pharmaceutical products include the MCA in the
U.K., the FDA and the DEA in the U.S. and the Health Protection Branch of the
Ministry of Health in Canada.
The generation of data is regulated and any generated data are susceptible to
varying interpretations that could delay, limit or prevent regulatory approval.
Required regulatory approvals may not be obtained in a timely manner, if at all.
In addition, other regulatory requirements for any such proposed products may be
met. Even if we obtain regulatory approvals, the terms of any product approval,
including labeling, may be more restrictive than desired and could affect the
marketability of our products. Regulatory authorities have the power to:
o revoke or suspend approvals of previously approved products;
o require the recall of products that fail to meet regulatory requirements;
and
o close manufacturing plants that do not operate in conformity with current
Good Manufacturing Practices and/or other regulatory requirements or
approvals.
Such delays or actions could affect our ability to manufacture and sell our
products.
If we are unable to complete successfully projects or clinical trials for the
development of products, our products will not receive authorization for
manufacture and sale.
Due to the complexity of the formulation and development of pharmaceuticals, we
cannot be certain that we will successfully complete the development of new
products, or, if successful, that such products will be commercially viable.
Before obtaining regulatory approvals for the commercial sale of each product
under development, we must demonstrate through clinical trials that the product
is of appropriate quality and is safe and effective for the claimed use.
Clinical trials of any product under development may not demonstrate the
quality, safety and efficacy required to result in an approvable or a marketable
product. Failure to demonstrate adequately the quality, safety and efficacy of a
therapeutic drug under development would delay or prevent regulatory approval of
the product. In addition, regulatory authorities in Europe or the U.S.
(including the U.K. MCA and the U.S. FDA) may require additional clinical
trials, which could result in (a) increased costs and significant development
delays, or (b) termination of a project as it would no longer be economically
viable.
28
The completion rate of clinical trials is dependent upon, among other factors,
obtaining adequate clinical supplies and recruiting patients. Delays in patient
enrollment in clinical trials may also result in increased costs and program
delays. Additional delays can occur in instances in which we share control over
the planning and execution of product development with collaborative partners.
We intend to continue to out-license a number of products and the clinical
development of such out-licensed products would then be the responsibility of
the licensee. We cannot be certain that if clinical trials are completed, either
we or our collaborative partners will file for or receive required
authorizations to manufacture and/or market potential products in a timely
manner.
If a marketed product fails to work effectively or causes adverse side effects,
this could result in damage to our reputation, the withdrawal of the product and
legal action against us.
Our ability to sell any pharmaceutical products after the receipt of regulatory
approval will depend in part on the acceptance of those products by physicians
and patients. Unanticipated side effects or unfavorable publicity concerning any
of our products generally or those of our competitors could have an adverse
effect on our ability to maintain and/or obtain regulatory approvals or
successfully market our products. Our future results of operations will also
depend on continued market acceptance of our current products and the lack of
substitutes that are cheaper or more effective.
The testing, manufacturing, marketing and selling of pharmaceutical products
entails a risk of litigation and product liability. If, in the absence of
insurance, we do not have sufficient financial resources to satisfy a liability
resulting from such a claim or to fund the legal defense of such a claim, we
could become insolvent. Product liability insurance coverage is expensive,
difficult to obtain and may not be available in the future on acceptable terms.
Although we carry product liability insurance, this coverage may not be
adequate. In addition, we cannot be certain that insurance coverage for present
or future products will continue to be available.
If we cannot obtain the financing necessary to fund our expansion, we will not
be able to respond to changes in demand from our customers.
We anticipate that our existing capital resources, together with cash expected
from operations and available from bank borrowings, should be sufficient to
finance current and anticipated operations and working capital requirements for
the next twelve months. However, the acquisition and licensing of products, the
expansion of our sales force, and any expansion or relocation of our facilities
would require substantial capital resources. If adequate funds are not
available, we may be unable to pursue acquisitions, or be forced to curtail
in-licensing or research and development programs.
To satisfy our capital requirements, we may need to raise additional funds
through public and private financings, including equity financings. We may also
seek additional funding through corporate collaborations and other financing
arrangements. We do not know whether adequate funds will be available when
needed or on terms acceptable to us. Alternatively, we may need to obtain funds
through arrangements with future collaborative partners or others that may
require us to relinquish rights to some or all of our technologies or product
candidates. If we are successful in obtaining additional financing, the terms of
the financing may have the effect of diluting the value of ordinary shares and
ADS's.
A change in the value of the U.S. dollar could adversely affect our results.
Changes in exchange rates, particularly those between the U.S. dollar, British
pound and Canadian dollar will affect our results of operations. For the year
ended December 31, 2001, approximately 30% of our revenue was earned in
currencies other than U.S. dollars and approximately 50% of our expenses were in
currencies other than U.S. dollars.
29
Any decrease in the sales of ADDERALL XR or ADDERALL could significantly reduce
our revenues.
In 2001, sales of ADDERALL XR and ADDERALL were $350.3 million, representing
approximately 40% of our revenues. Any factors that decrease sales or reduce
production of ADDERALL XR or ADDERALL would significantly reduce our revenues
and earnings. These include:
o issues impacting the production of ADDERALL XR and ADDERALL or our
supply of amphetamine salts;
o development and marketing of competitive pharmaceuticals (including
generic versions of AdderalL - see details above under "Treatments for
central nervous system disorders");
o technological advances (including the introduction of competing
non-scheduled ADHD treatments);
o changes in reimbursement policies of third-party payers; government
action/intervention;
o marketing or pricing actions by our competitors;
o the occurrence of adverse reactions to AdderalL XR or ADDERALL;
o public opinion towards ADHD treatments;
o product liability claims; or
o changes in prescription writing practices.
Contracts, intellectual property patents and other agreements are used in all
areas of operation of the business. These may contain conditions that do not
protect our position or that we cannot comply with.
Contracts form the basis of agreement in many key activities such as mergers and
acquisitions, arrangements with suppliers and outsourcing, or product licensing
and marketing. These contracts may contain conditions that impose duties on the
parties involved or may fail to contain adequate conditions to protect our
position. We may be unable to meet these conditions or may be unable to enforce
other parties to comply. We may therefore suffer financial loss or penalty.
An important part of our business strategy is to protect our products and
technologies through the use of patents, proprietary technology and trademarks,
to the extent available. In addition, our success depends upon the ability of
our collaborators and licensors to protect their own intellectual property
rights. Patents and patent applications covering a number of the technologies
and processes owned or licensed to us have been granted or are pending in
various countries, including the U.S. We intend to enforce vigorously our patent
rights and believe that our collaborators intend to vigorously enforce patent
rights they have licensed to us. However, patent rights may not prevent other
entities from developing, using or commercializing products that are similar or
functionally equivalent to our products or technologies or processes for
formulating or manufacturing similar or functionally equivalent products. Our
patent rights may be successfully challenged in the future. We cannot assure you
that our patents and patent applications or those of our third party
manufacturers will provide valid patent protection sufficiently broad to protect
our products and technology and will not be challenged, revoked, invalidated,
infringed or circumvented by third parties. In the regular course of business,
we are party to litigation or other proceedings relating to intellectual
property rights.
Additionally, our products or the technologies or processes used to formulate or
manufacture those products may now or in the future infringe the patent rights
of third parties. It is also possible that third parties will obtain patent or
other proprietary rights that might be necessary or useful for the development,
manufacture or sale of our products. If third parties are the first to invent a
particular product or technology, it is possible that those parties will obtain
patent rights that will be sufficiently broad to prevent us or our strategic
collaborators from developing, manufacturing or selling our products. We may
need to obtain licenses for intellectual property rights from others to develop,
manufacture and market commercially viable products. We may not be able to
obtain these licenses on commercially reasonable terms, if at all. In addition,
any licensed patents or proprietary rights may not be valid and enforceable.
30
We also rely on trade secrets and other un-patented proprietary information,
which we generally seek to protect by confidentiality and nondisclosure
agreements with our employees, consultants, advisors and collaborators. These
agreements may not effectively prevent disclosure of confidential information
and may not provide us with an adequate remedy in the event of unauthorized
disclosure of such information. If our employees, scientific consultants or
collaborators develop inventions or processes that may be applicable to our
products under development, such inventions and processes will not necessarily
become our property, but may remain the property of those persons or their
employers. Protracted and costly litigation could be necessary to enforce and
determine the scope of our proprietary rights. Our failure to obtain or maintain
patent and trade secret protection, for any reason, could allow other companies
to make competing products and reduce the sales of our products.
We have filed applications to register various trademarks for use in connection
with pharmaceuticals and related laboratory services in the U.S. and intend to
trademark new product names as new pharmaceuticals and services are developed.
In addition, with respect to certain products, we rely on the trademarks of
third parties. These trademarks may not afford adequate protection, or we and
the third parties may not have the financial resources to enforce any rights
under any of these trademarks. Our inability or the inability of these third
parties to protect their trademarks because of successful third party claims to
those trademarks could allow others to use our trademarks and dilute their
value.
Throughout our business and particularly through the sale of our products, we
may become involved in litigation as a defendant. This may result in distraction
of senior management, significant defense costs and payment of compensation.
Item 3 provides a summary of significant legal proceedings in which we are
currently involved.
There has been substantial litigation in the pharmaceutical industry with
respect to the manufacture, use and sale of new products that are the subject of
conflicting patent rights. These lawsuits relate to the validity and
infringement of patents. The expense of defending lawsuits brought against us
could cause us not to defend these suits and abandon the products. In the past,
innovators of products which we are in the process of developing have filed
patent infringement lawsuits challenging notices of non-infringement submitted
as part of regulatory filings. These lawsuits may be brought by innovators
against us or our collaborative partners while we or our collaborative partners
pursue regulatory approvals for our products. The ultimate outcome of this type
of litigation, if brought, may not be favorable. Our own patents may be subject
to infringement by others. While we may pursue litigation in order to protect
these rights, we may not be successful in these lawsuits. We are also required
to certify to regulatory authorities, such as the FDA, when seeking approval of
some of our products that the product does not infringe upon third party rights.
A patent holder may challenge a notice of non-infringement or invalidity by
filing suit for patent infringement within 45 days of receiving notice. This
challenge, if made, would prevent regulatory approval in the U.S. until the suit
was resolved or until at least 30 months had elapsed.
Any loss of key personnel could cause us subsequent financial loss.
Our success is dependent on our ability to attract and retain highly qualified
management and scientific personnel. We face intense competition for personnel
from other companies, academic institutions, government entities and other
organizations. We may not be able to successfully attract and retain such
personnel. In general, we have agreements with some of our key scientific and
management personnel for periods of one year or less. The loss of such
personnel, or the inability to attract and retain the additional, highly skilled
employees required for our activities, could have an adverse effect on our
business.
31
ITEM 2: Properties
We occupied the following principal premises as at December 31, 2001:
Location Use Approximate Owned or Leased
Square Footage
Chineham, Hampshire, U.K. Office accommodation (Global 35,000 Owned
Headquarters)
Rockville, Maryland, USA Office accommodation, 44,500 Leased
laboratories and GCMP suite
(Shire Laboratories Inc.)
Rockville, Maryland, USA Office accommodation (Shire 16,500 Leased
Pharmaceuticals Development
Inc.)
Florence, Kentucky, USA Office accommodation and 32,000 Leased
warehousing (Shire US Inc.)
Valley Stream, New York, USA Schedule II manufacturing 9,700 Leased
facility and laboratories
Northborough, Massachusetts, Office accommodation, 61,500 Owned
USA laboratories and GCMP suite
(Shire Biologics Inc.)
Buffalo Grove, Illinois, USA US distribution facility 70,000 Owned
Laval, Quebec, Canada Office accommodation and 193,500 Owned
laboratories (Shire BioChem
Inc.)
Sainte Foy, Quebec, Canada Office accommodation, 118,000 Owned
manufacturing facility and
laboratories (Shire Biologics
Inc.)
Paris, France Office accommodation 1,500 Leased
Cologne, Germany Office accommodation 3,000 Leased
Madrid, Spain Office accommodation 2000 Leased
Florence, Italy Office accommodation 2000 Leased
32
We also have Representative Offices in Singapore and the Republic of Ireland and
have other smaller locations both in some of the countries listed above and in
several other countries around the world.
ITEM 3: Legal Proceedings
As of December 31, 2001 we had been named as a defendant in approximately 3,784
lawsuits, in both U.S. federal and state courts, which seek damages for, among
other things, personal injury arising from certain products supplied for the
treatment of obesity by us and several other pharmaceutical companies. As of
December 31, 2001, we had been dismissed from 3,619 cases and approximately 111
cases were pending dismissal. We are involved in other legal proceedings. See
Note 19b to the consolidated financial statements.
Throughout our business and particularly through the sale of our products, we
may become involved in litigation as a defendant. This may result in distraction
of senior management, significant defense costs and payment of compensation.
In addition, we are from time to time party to litigation or other legal
proceedings. Other than as discussed above, we are not a party to any litigation
or other legal proceedings that we believe could reasonably be expected to have
a material adverse effect on our financial condition or results of operations.
ITEM 4: Submission of matters to a vote of security holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2001.
33
ITEM 4A: Executive Officers of the Registrant
Our directors and executive officers as of February 27, 2001 were as follows:
Name Age Position
Dr James Cavanaugh 64 Non-executive Chairman
Rolf Stahel 57 Chief Executive
Angus Russell 45 Group Finance Director
Dr Wilson Totten 46 Group Research and Development Director
Dr Barry Price 58 Senior Non-executive Director
Dr Bernard Canavan 66 Non-executive Director
Ronald Nordmann 60 Non-executive Director
Dr Francesco Bellini 54 Non-executive Director
The Hon. James Andrews Grant 64 Non-executive Director
Gerard Veilleux 59 Non-executive Director
The brief biographical details of the Directors are as follows:
Dr James Cavanaugh joined the Board on March 24, 1997 and was appointed as
Non-executive Chairman with effect from May 11, 1999. Dr Cavanaugh is the
President of HealthCare Ventures LLC and is also on the Board of 3-Dimensional
Pharmaceuticals Inc.. Formerly he was President of SmithKline & French
Laboratories, the U.S. pharmaceutical division of SmithKline Beecham
Corporation. Prior to that, he was President of SmithKline Beecham Corporation's
clinical laboratory business and, before that, President of Allergan
International. Prior to his industry experience, Dr Cavanaugh served as Deputy
Assistant to the President of the U.S. for Health Affairs on the White House
Staff in Washington, DC. He is a Non-executive Director of MedImmune Inc.,
Diversa Corporation and Versicor Inc.
Rolf Stahel joined Shire in March 1994 as Chief Executive from Wellcome plc
where he worked for 27 years in Switzerland, Italy, Thailand, Singapore and the
U.K. As Regional Director based in Singapore, Mr Stahel was responsible for 18
Pacific Rim countries. From April 1990 until February 1994, he served as
Director of Group Marketing reporting to the Chief Executive. A business studies
graduate of KSL Lucerne, Switzerland, he attended the 97th Advanced Managers
Program at Harvard Business School.
On March 15, 2001 Mr Stahel received the Chief Executive Officer of the Year
Award 2001 for the global pharmaceutical industry.
Angus Russell joined Shire on December 13, 1999 as Group Finance Director. Mr
Russell worked for ICI, Zeneca and AstraZeneca for a total of 19 years. His last
position was Vice President - Corporate Finance at AstraZeneca PLC, where he was
responsible for financial input into mergers and acquisitions activities,
management of tax, legal and finance structure, investor relations activities
and the management of various financial risks. Prior to this, he held a number
of positions within Zeneca Group PLC from 1993 until 1999, including Group
Treasurer, and before that in ICI from 1980 until 1992. Mr Russell is a
chartered
34
accountant, having qualified with Coopers & Lybrand and is a fellow of the
Association of Corporate Treasurers.
Dr Wilson Totten joined Shire in January 1998 as Group Research and Development
Director. Dr Totten is a medical doctor and has wide experience in the
pharmaceutical industry covering all phases of drug development. He has
substantial experience in the field of central nervous system disorders. His
last position was Vice President of Clinical Research and Development with Astra
Charnwood where he served from 1995 to 1997, having previously worked for Fisons
Pharmaceuticals from 1989 to 1995, and prior to that with 3M Health Care and Eli
Lilly. He is a Non-executive Director of Keryx Biopharmaceuticals Inc.
Dr Barry Price joined the Board on January 24, 1996 having spent 28 years with
Glaxo holding a succession of key executive positions with Glaxo Group Research.
He is Chairman of Antisoma plc and also Biowisdom Ltd. He is also on the board
of directors of Pharmgene plc. Dr Price is Chairman of the Remuneration
Committee.
Dr Bernard Canavan joined the Board as a Non-executive Director on March 11,
1999. Dr Canavan is a medical doctor. He was employed by American Home Products
for over 25 years until he retired in January 1994. He was president of that
corporation from 1990 to 1994, and prior to that was Chairman and Chief
Executive Officer of American Home Products, Pharmaceutical Division,
Wyeth-Ayerst Laboratories. Dr Canavan is a Director of Genaera Corporation. Dr
Canavan is Chairman of the Audit Committee.
Ronald Nordmann joined the Board on December 23, 1999 having previously served
as a Non-executive Director of Roberts Pharmaceutical Corporation since May 1999
and has been a financial analyst in healthcare securities since 1971. From
September 1994 to January 2000 he was an analyst and partner at Deerfield
Management. He has held senior positions with PaineWebber, Oppenheimer & Co., F.
Eberstadt & Co., and Warner-Chilcott Laboratories, a division of Warner-Lambert.
Mr Nordmann received his undergraduate degree from The Johns Hopkins University
and an M.B.A. from Fairleigh Dickinson University. Mr Nordmann is also a
Director of Guilford Pharmaceuticals Inc., Boron, LePore & Associates Inc. and
Pharmaceutical Resources, Inc.
Dr Francesco Bellini joined the Board on May 14, 2001 as a Non-executive
Director. Dr Bellini is Chairman of Picchio International Inc. and is also on
the board of several companies and organizations such as Molson Inc. and
Industrial-Alliance Life Insurance Co. Formerly, he was Chairman and Chief
Executive Officer of BioChem which he co-founded in 1986.
The Hon. James Andrews Grant joined the Board on May 14, 2001 as a Non-executive
Director. He was formerly a Director of BioChem since 1986, and is a partner
with the law firm of Stikeman Elliot in Montreal. Mr Grant sits on the boards of
two other Canadian corporations in addition to other foundations and councils
that are not for profit organizations. He attended McGill University receiving a
B.A. in arts in 1958 and a B.C.L in Law in 1961.
Gerard Veilleux joined the Board on May 14, 2001 as a Non-executive Director. He
was formerly a Director of BioChem since 1999. He is president of Power
Communications Inc. and Vice President of Power Corporation, a diversified
management and holding company. Mr Veilleux is a director of several public and
private companies as well as a member of the Board of Governors of McGill
University. He has a Masters degree in public administration from Carleton
University and a Batchelor of Commerce from Laval University.
35
PART II
ITEM 5: Market for the Registrant's Common Equity and Related Stockholder
Matters
Ordinary Shares
Our ordinary shares are traded on the London Stock Exchange ("LSE"). The
following table presents the per share closing mid-market quotation for our
ordinary shares as quoted in the Daily Official List of the LSE for the periods
indicated.